Hot CPI Numbers Shake the Market – Fed Cut Delayed
Yesterday’s January U.S. CPI came out hotter than most analysts anticipated, pushing back expectations for the next Federal Reserve rate cut. Today’s data docket is lighter but still worth a closer look, featuring UK GDP and U.S. Producer Price Index (PPI).
Where We Stand – Everyone Was on the Edge
Everyone’s been circling the January CPI like a hungry dog on a hot summer day. And guess what? The numbers didn’t disappoint – they stunned us all.
- Headline inflation jumped 0.5% month‑over‑month (MoM) and 3.0% year‑over‑year (YoY).
- Core inflation spiked 0.4% MoM and 3.3% YoY.
These figures aren’t just a one‑off; they’re part of a trend that’s been blowing up since September. Core inflation has never dipped below 3% YoY in this cycle, and headline speeds have been picking up every month. For the Fed’s policy committee (FOMC), it’s a grim read: the leap toward the 2% target is stalled, or worse, sliding backward.
Spotlight on “One‑Off” Factors
Sure, shelter costs leapt and egg prices shot up, but it’s not all a grocery‑price glitch. The data is solid, real, and can’t be brushed away as a mere blip. It’s an honest reminder that the Fed’s default stance remains firmly on the sidelines – patient, no rush to cut rates. The economy isn’t craving a boost just yet.
Because of this, the chance of a long pause in the easing cycle has grown sharply. Current USD OIS curves now only see a single 25‑basis‑point (bp) cut possible in December.
Markets React – A Mix of Pain and Pride
Predictably, the market cracked up. Stock indices dipped, Treasury yields slid along the curve, and the dollar went shinier against all G10 peers. The equity rally that once seemed bullish is no longer a safe bet, as the Fed’s “put” faded away. But that doesn’t mean we’re giving up on the stock market entirely.
With solid economic growth and earnings, a cautious approach could still push the market higher – possibly in a bumpy road. Friday’s retail sales numbers will be the next big test to keep that bull case alive.
FX: The Dollar Game
The CPI data bolsters the dollar’s supremacy narrative. The U.S. is looking set to stay more hawkish than most of its peers For longer. Trade uncertainties also make it risky to hold long USD shorts, nudging the DXY toward fresh 110 highs. Reciprocally, any new tariff announcements could create an opportunity for a dip.
What’s Next – Today’s Docket
It’s a lighter day on the data front. We’ll be looking at:
- Todays UK GDP for Q4, which might paint a more grim picture as the economy contracts by 0.1% at year’s end.
- U.S. PPI releases from last month.
- The initial jobless claims from last week, though the February jobs report comes later.
- A 30‑year U.S. Treasury auction slated for later this morning – $25 billion on the line.
- Remarks from ECB officials Nagel and Cipollone.
- Corporate earnings from John Deere, Airbnb, and Palo Alto Networks.
Keep an eye on the rapid moves – the market’s still wildly reactive to every tick of data coming out. Stay ready, stay flexible, and keep that shake‑up spirit alive.
