In Monday’s CPI preview report, we famous that merchants and economists had been searching for a decline in headline inflation in July, primarily based closely on base results and falling gasoline costs, however the so-called “core” CPI studying (stripping out meals and power costs) was nonetheless anticipated to rise.
Because it seems, the just-released CPI report confirmed inflation declining at a fair sooner price than economists had been anticipating:
- Headline CPI printed at 0.0% m/m, 8.5% y/y
- Core CPI got here in at 0.3% m/m, 5.9% y/y
Trying into the person parts, the cooler-than-expected CPI report was pushed by sharp declines in power (-4.6%), gasoline (-7.7%), and used automobile (-0.4%) costs, whereas the parts displaying rising costs, like housing / “homeowners’ equal hire” (+0.6%), didn’t see a significant acceleration. Notably, this was the primary headline CPI studying that got here in under expectation in 11 months!
With a lot driving on inflation readings, markets have justifiably seen a giant response to this morning’s surprisingly comfortable studying. Crucially, the market-implied odds of a 75bps rate of interest hike from the Fed at its subsequent assembly have fallen from almost 70% earlier than the discharge to simply 25% now, in keeping with the CME’s FedWatch device. Whereas we nonetheless have one other NFP and CPI report earlier than the Fed’s subsequent financial coverage assembly, the mix of robust jobs progress and falling inflation that we’ve seen during the last week will definitely have Jerome Powell and firm respiration a bit simpler.
Not surprisingly, the US greenback has come underneath robust promoting strain within the wake of the report, with the dollar dropping by roughly 100 pips in opposition to all of her main rivals. Because the under chart reveals, the US greenback index is poised to shut under its 50-day exponential shifting common for under the second time since February. An in depth close to present ranges may set the stage for a deeper pullback towards the 100-day EMA near103.75 subsequent:
Supply: StoneX, TradingView
Elsewhere, we’ve seen US fairness indices catch a giant bid on hopes of much less aggressive rate of interest hikes, whereas commodities like gold and oil have rallied on the again of the drop on the earth’s reserve forex.
If the “peak inflation” theme gathers steam within the coming weeks, we might look again at immediately’s inflation studying as a serious turning level for the year-to-date market tendencies.