It's Wednesday already and we're finally getting there. Markets have been fixated on the US CPI data release that will come later today, with the past two days featuring a bit more of a snoozefest and lack of trading direction.
After the hot US jobs report at the end of last week, we're going to run it all back again today in another round of "who knows best" when it comes to deciphering the Fed pivot. After a 9.1% annual inflation print in June, we are expected to see the reading slip back to 8.7% in July. However, the core reading is estimated to have increased from 5.9% in June to 6.1% in July. That won't be of much comfort, so it will depend on how the market reads into the numbers.
Although garnering little attention yesterday, the productivity numbers highlight the elevation in labour costs and that won't help to ease the Fed's challenge in trying to bring down inflation.
Coming back to today, all eyes will be on the consumer inflation numbers and much like the US jobs report on Friday last week, it will come down to what the readings have to offer before any major reaction in markets.
A beat on estimates will see markets keep 75 bps on the table and refuel the post-NFP reaction that we saw to close out last week. But a downside surprise will reignite hopes of a Fed pivot and one can expect risk trades to rally hard (the dollar to fall) in the aftermath.
Once again, it will come down to how markets will take in the numbers. Lower gasoline prices should see the monthly inflation numbers and the headline reading ease up a little but a continued push higher in the core reading will still leave little room for comfort at the Fed. But seeing the reaction from Friday, it doesn't take a lot for greed to come back in and I think that will be the case again if we do see a report which matches estimates.
