Markets quiet down after the US CPI report yesterday | investingLive
There was plenty of action after the US CPI report here yesterday but broader markets are seen taking a bit of a breather after the hustle and bustle overnight. The only real mover on the day is in crypto as Ethereum shoots up above $4,600 to four-year highs. Other than that, we’re seeing light changes all around across other asset classes.
In FX, major currencies are muted after the dollar fell yesterday with traders now more or less fully pricing in a 25 bps rate cut for September. Fed funds futures also show ~60 bps of rate cuts priced in by year-end currently. Here’s a snapshot of dollar pairs going into the session ahead:
As seen above, the changes are light with narrow ranges prevailing for the most part. Are we already switching back to the summer lull in just less than a day?
Elsewhere, equities are also looking fairly muted today. S&P 500 futures are flattish following a push to fresh record highs in Wall Street yesterday. There’s no follow up just yet in the new day but buyers remain firmly in control as tech shares continue to stay buoyed. The AI boom continues to run its course.
So, what can we make of the US CPI report yesterday?
On the front of it, the numbers might seem pretty alright and more or less in line with expectations. Core monthly inflation came in at 0.322%, matching estimates but is at the highest since January. Meanwhile, core annual inflation was seen at 3.059% – just a fraction higher than estimates and borderline causing the rounding to the 3.1% reading we’re seeing.
The breakdown though was more interesting and telling. The bottom line is that we’re still yet to see material tariffs passthrough. There is some evidence but nothing overwhelming to suggest a major impact yet for the time being. So, the can gets kicked down the road for yet another month.
Of note, core goods inflation underwhelmed with a 0.21% m/m reading, meaning it was little changed compared to June’s 0.20% m/m reading. That’s not particularly strong evidence of any major uptick in price pressures there.
And according to MNI, their calculation of median core goods inflation across 56 items even softened to 0.28% m/m after the 0.44% m/m reading in June. The pace of the increase is still a strong one with it having averaged 0.0% m/m in 2024 and 0.06% m/m in Q1 2025. However, the moderation in July points to a lack of material evidence of acceleration in tariffs passthrough on inflation.
Now, most analysts are expecting there to be a stronger uptick here in the fall months i.e. autumn. But for now at least, we still have to wait for another month to see if inflation data will prove to be scarier than it is made to be for the Fed.
The reaction among Fed policymakers are more mixed though with Kansas City Fed president Schmid saying he will dissent to a rate cut. Meanwhile, Fed governor nominee Miran of course says that there is no evidence at all of any tariffs passthrough and that the inflation numbers are “well behaved”. Then again, he is nominated by Trump for the position so you’d expect that kind of political bias in his remarks.
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