Markets Still Wobbly: CPI Cool Hit, but Not Enough to Flip the Story
What Happened
The US Consumer Price Index dropped in on Tuesday, showing prices climbed 0.2% month‑over‑month and an overall 2.8% year‑over‑year rise. Core inflation ticked up the same 0.2 % and recorded a 3.1 % rise—its slowest rate since early 2021.
Stocks jumped in the short term, Treasuries rallied, and the dollar dipped to new lows. But the moves were fleeting; by the end of the day the S&P 500 had settled back close to its pre‑market level.
Why It Matters
- Calm inflation looks good for the Federal Reserve, but the 2% target is still a long haul.
- Tariff policies and labour‑market uncertainty keep upside risks high.
- Rates are likely to stay held for now; any cuts early in the year would need a serious slowdown in employment.
- Policymakers remain patient; markets might still bounce but could not hold the mark.
The Investor Takeaway
Equity participants should keep a wary eye on the lack of sustainable gains—there’s a hard flag for those hoping to swoop into pop‑ups. Meanwhile, bonds still look attractive; a dovish outlook favours discount rates.
In FX, the dollar is over‑charged: it’s no longer the safe haven it once was and can still feel the tariff tremors. A short‑term pause is possible, but a broad flip‑over of the greenback seems unlikely unless growth risks vanish. Targets?
- EUR/USD: ~1.10
- GBP/USD: ~1.30
- USD/JPY: ~145
What’s on the Calendar Today
A few points to keep in mind, none of which should swing the markets wildly:
- Weekly U.S. jobless claims – a gauge of continuing workforce changes.
- U.S. PPI release – an extra feed into future PCE estimates.
- Eurozone January industrial production – a modest 0.6% monthly rebound appears likely.
- Expected ECB speaker commentary – several key voices will add context.
- A 30‑year Treasury auction – adding to the already hefty Treasury supply this week.
Bottom line: the CPI’s cool snap didn’t give a definitive “all clear”, but it gave policymakers a tiny pause. Markets will keep dancing to the tune of policy uncertainty, with bonds and a careful approach to FX as the safer bets for the near term.
