US CPI recap: A turning point in the inflation debate?

In Monday’s CPI preview report, we noted that traders and economists were looking for a decline in headline inflation in July, based heavily on base effects and falling gasoline prices, but the so-called “core” CPI reading (stripping out food and energy prices) was still expected to rise.

As it turns out, the just-released CPI report showed inflation declining at an even faster rate than economists were expecting:

Headline CPI printed at 0.0% m/m, 8.5% y/y
Core CPI came in at 0.3% m/m, 5.9% y/y

Looking into the individual components, the cooler-than-expected CPI report was driven by sharp declines in energy (-4.6%), gasoline (-7.7%), and used vehicle (-0.4%) prices, whereas the components showing rising prices, like housing / “owners’ equivalent rent” (+0.6%), did not see a meaningful acceleration. Notably, this was the first headline CPI reading that came in below expectation in 11 months!

Market reaction

With so much riding on inflation readings, markets have justifiably seen a big reaction to this morning’s surprisingly soft reading. Crucially, the market-implied odds of a 75bps interest rate hike from the Fed at its next meeting have fallen from nearly 70% before the release to just 25% now, according to the CME’s FedWatch tool. While we still have another NFP and CPI report before the Fed’s next monetary policy meeting, the combination of strong jobs growth and falling inflation that we’ve seen over the last week will certainly have Jerome Powell and company breathing a bit easier.

Not surprisingly, the US dollar has come under strong selling pressure in the wake of the report, with the greenback dropping by roughly 100 pips against all of her major rivals. As the below chart shows, the US dollar index is poised to close below its 50-day exponential moving average for only the second time since February. A close near current levels could set the stage for a deeper pullback toward the 100-day EMA near103.75 next:

Source: StoneX, TradingView

Elsewhere, we’ve seen US equity indices catch a big bid on hopes of less aggressive interest rate hikes, while commodities like gold and oil have rallied on the back of the drop in the world’s reserve currency.

If the “peak inflation” theme gathers steam in the coming weeks, we may look back at today’s inflation reading as a major turning point for the year-to-date market trends.

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.