Annualized US inflation data fell to 2.5% as expected, but core CPI was a touch higher than anticipated, leading to a more hawkish expectation of Fed’s course of monetary policy.

1. Yesterday saw the release of US CPI (inflation) data. While the headline annualized rate fell from 2.9% to 2.5% exactly as expected, core CPI which is more closely watched by the Fed rose by 0.3% month-on-month when a gain of only 0.2% was anticipated. That dampened expectations of Fed rate cuts for the remainder of 2024: previously, a total cut of 1% was expected by 2025, but now the consensus is leaning towards a total cut of only 0.75%. The US Dollar has made minor gains, and US treasury yields have risen, due to the slightly hot data. We will see next week whether the Fed cuts by 0.25% or 0.50%. Another clue will come today in the form of US PPI data, which is a key pointer to inflationary pressure – a month-on-month gain of 0.1% is expected.
2. The past day has seen strong gains by stock markets, especially in the technology sector, and especially in Asia. Notably, the Japanese Nikkei 225 Index is up today by more than 3%, which is a major bullish move.
3. The European Central Bank is holding a policy meeting today, at which it is expected to cut its Main Refinancing Rate by 0.60% from 4.25% to 3.65%.
4. The Japanese Yen has continued to show volatility, but the USD/JPY currency pair has been rising since the US CPI data release after reaching a long-term low price below ¥141. A few hours ago, the Bank of Japan’s Tamura stated that Japan’s natural interest rate is about 1% (it currently stands at 0.25%) and that it needs to rise in a “timely and gradual manner”. However, this comment has not boosted the relatively value of the Yen.
5. In the Forex market, the New Zealand Dollar has been the strongest major currency since today’s Tokyo open, while the US Dollar has been the weakest. There is a valid long-term bearish trend in the USD/JPY currency pair but right now the price is moving against that trend.
6. Gold again tested its record high but retreated, as it has done several times in recent weeks. This pattern is suggestive of a strong forthcoming bullish breakout, so a daily close at a new record high could be an excellent long trade entry signal here.
7. Vice President Kamala Harris has now edged ahead of former President Trump is the betting markets as the likely narrow winner of November’s US Presidential election. The polls remain extremely close, however.
8. There will be a release of US Unemployment Claims data later today.

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