So, what'd I miss? 😉
It's a big final two days to the end of the week before we start to slowly gear towards another round of central bank bonanza at the end of October and early November. Inflation remains the hot topic and they don't come any bigger than today's US CPI data release.
Last month, we saw the figures for August came in hotter than expected and the market reaction was rather straightforward. Everything else sold off and the dollar was bid strongly in the aftermath, and that will surely still be in the back of the minds of market players coming into today as well.
But first, let's take a look at the expectations for today.
- CPI +0.2% m/m (prior +0.1%)
- CPI +8.1% y/y (prior +8.3%)
- Core CPI +0.5% m/m (prior +0.6%)
- Core CPI +6.5% y/y (prior +6.3%)
So, the headline reading is estimated to ease further on an annual basis but the core reading is estimated to run higher - matching its highest point back in March this year. At this point, sentiment is rather clear in the sense that these inflation numbers are sticky and going to keep higher for a while.
As such, the question is whether or not there will be any chink in the armor for the Fed pivot cause to be reignited. I reckon that might only occur if we do see the numbers come in softer. However, I don't expect that to change the Fed's current rhetoric whatsoever. It will take more months of cooler inflation to really convince of that.
Given that backdrop, the trade here is essentially to follow the data. If the numbers come in hot, expect a repeat of last month's showing. If we're mostly in-line with expectations, I can see broader markets finding a tad bit of relief perhaps but the overall tension and nervousness will continue to linger ahead of the FOMC meeting in three weeks' time. That should likely keep the dollar supported even if it is met with some knee-jerk selling to the data.
The only way I see markets really finding some comfort is if the numbers are much lower than estimated. That might be reason for equities and bonds to bounce back and provide much needed relief for other major currencies and commodities against the dollar - well at least until the tide turns again.