Can CPI Finally Liven Things Up?

We really hope US CPI can liven things up a bit, as the last few weeks have seen some typical summertime trading conditions with thinner liquidity and lower volumes.

To make matters worse, we also have markets in a bit of a limbo until they have more clarity on whether the Fed will taper slowly or taper fast.

This week, the market’s attention will turn to the incoming US CPI print to see whether we have any stronger than expected acceleration or deceleration in price pressure in the United States.

The odds of an official tapering announcement at the September FOMC meeting have fallen considerably after the most recent jobs report. As all the focus is on jobs, this week’s CPI probably won’t be enough to sway the markets from that expectation whether we see a beat or a miss.

When it comes to inflation, what the hawks have to say doesn’t really matter right now, as we already know what they think about recent price pressures. Thus, watching what the neutral FOMC members have to say is far more important right now because their votes could sway the median. If we see a much weaker print, it might be enough to keep them more reserved, but the risk is also there that a much stronger print encourages them to take a second look at inflation risks and could see them tilt more hawkish at the September meeting.

As always, we provide an in-depth analysis in this week’s video.