The US CPI report is starting to look like more of a bad dream than a game changer. The initial market reaction was nightmarish with nowhere to hide but now virtually all those moves have been wiped out.
The US dollar is largely where it was before the report and would probably be back if not for the weak UK GDP report today, a dip in oil prices and a weakening Japanese economy.
Here's a quick recap of where things are compared to pre-CPI on Tuesday:
- S&P 500 now at 5004 vs 5020
- Nasdaq now at 15,795 vs 15,950
- Russell 2000 at 2032 now vs 2046
- US 10-year 4.24% now 4.16%
- Gold at $2001 vs $2028
- Euro 1.0754 vs 1.0790
This begs the question about where these assets should be? The Fed funds futures market is pricing in 97 bps in cuts vs 111 bps prior to CPI.
Now it's starting to look like the rebound went too far. The CPI report wasn't a nightmare, it really happened and it's material. Could it be erased in a couple months with softer prices rises? Absolutely, especially if the consumer continues to weaken like it did in today's retail sales report.
As for what's next, I will be closely listening to comments from the Fed's Waller at 1:15 pm ET.
