Key U.S. CPI Data Set to Move Markets at 13:30 UK Time
The Federal Reserve (Fed) operates with a twin mandate: to promote maximum employment and ensure stable prices. However, in recent months, the Fed has had to focus more on maintaining stable prices due to rising inflation concerns, even at the expense of maximum employment.
The U.S. Consumer Price Index (CPI) data release today is crucial, as it will significantly influence market sentiment. A softer-than-expected CPI reading may lead to optimism that the Fed could ease its monetary policy by cutting rates, which could boost markets. Conversely, a higher CPI could signal ongoing inflationary pressures, keeping the Fed on a hawkish path.
Market Scenarios Based on CPI Data:
- Lower-than-Expected CPI:
- US Core CPI MM, SA (Jul 2024): 0% or lower
- US Core CPI YY, NSA (Jul 2024): 3.0% or lower
- US CPI MM, SA (Jul 2024): 0.1% or lower
- US CPI YY, NSA (Jul 2024): 2.8% or lower
- If the CPI data comes in below these levels, and revisions remain unchanged or are revised lower, expect a positive reaction across markets. Specifically, AUDUSD, SP500, and EURUSD could see buying interest as markets may interpret this as a sign that inflation is cooling. This scenario could lead to a supportive environment for stocks, with the potential for rate cuts from the Fed to support the labor market.
- Higher-than-Expected CPI:
- US Core CPI MM, SA (Jul 2024): 0.4% or higher
- US Core CPI YY, NSA (Jul 2024): 3.4% or higher
- US CPI MM, SA (Jul 2024): 0.4% or higher
- US CPI YY, NSA (Jul 2024): 3.2% or higher
- On the other hand, if the CPI data shows higher-than-expected inflation, coupled with revisions that are unchanged or revised higher, markets could react negatively. In this scenario, expect S&P500 and EURUSD selling pressure as investors may worry that the Fed will need to maintain high interest rates even in the face of a struggling labor market—a scenario that could trigger significant market concerns.
Given the potential implications of today’s CPI data, market participants are advised to monitor the release closely. The outcome could set the tone for the Fed’s next moves and the broader market direction.