Yesterday’s news
Much of the market had framed yesterday’s US CPI release as the be all and end all. We had seen limited position adjustment moving into the event evidencing just how much of an emphasis investors were putting on the data release. Contrary to the market’s hysteria, to clients we have shared a more cautious tone: the data is unlikely to drive the kind of volatility that the market is bracing for. Yesterday, we saw exactly that. An indecisive market showed limited regard for an inflation reading in line with consensus expectations. In fact, the US CPI data was so highly anticipated that the market almost entirely looked past UK inflation data which did provide a significant miss.
US core inflation came in as expected month on month and headline inflation showed a minor miss of 2.9% versus a 3% prior and expected reading. USD has been generally weaker having broken the 1.10 level in EURUSD earlier in the session. The mixed reaction in treasuries showed short terms bonds rise immaterially with longer dated portions of the curve falling modestly. The modest push further into yield curve inversion wasn’t enough to spark significant debate or wider price action. Instead then, what of the overlooked UK data yesterday? On this side of the Atlantic, core and headline inflation recorded a miss of 0.1% to the downside. For the core figure, that’s a 0.2% decline versus the June figure.
Had the market not been fixated on the US data to follow a few hours later, this would likely have sparked stronger debate over whether the Bank of England will cut rates in September. The case for such a move will be stronger today with UK GDP data this morning recording lower than expectations and prior readings on many statistics. Whether this once again is overlooked due to a focus further ahead on US retail sales due at 13:30 BST, time will tell.
Discussion and Analysis by Charles Porter
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