Strong US inflation data sends indices down, USD up

[MongiIG]

Both the headline and core CPI number in the US have come in higher than expected, and as predicted, the money has been going into the dollar and out of risk assets. It keeps the pressure on the Fed to continue to raise rates.

 

 Jeremy Naylor | Writer, London | Publication date: Thursday 13 October 2022

US headline CPI

One of the big pivot points of the week we were looking ahead to was the US consumer price inflations (CPI) data out on Thursday.

It just passed and we have seen numbers that have beaten on both levels of this. The headline Consumer Price Index rose to 8.2% in September year-on-year (YoY) after an 8.3% print in August. Yes, you know, it was less than we saw in August, but we had been expecting this to drop back to 8.1%. So that is more hawkish than we had been expecting.

S&P 500

But I think it's more important to look at the core CPI numbers. These are numbers that don't include that volatile food and energy part, which we know is generating a lot of heat in terms of inflation in the US economy.

But look at this core number, 6.6% in September year on year, up from 6.3% in August. We had only expected to increase to 6.5%. Now the effect of this has seen two major moves in the market. This is the S&P 500 trading before the market opens on the IG platform, the 10-minute candle, as you can see quite clearly here, the downside that we're seeing in terms of the move, we're only 15 minutes after the release of this data.

Now insofar as where we are on a day to day basis, again we have this print on the IG platform before the cash session gets underway, and we are seeing a new lower low for the year.

Earlier today we were reporting the fact that the S&P yesterday closed at levels not seen since November 2020. Here we are now on a further leg on the way down and if we get a close at these levels it'll be the lowest close we've seen since the 4th of November 2020 and we're waiting for the cash session to get underway with 27.37% down from the record high we saw on the S&P back in the early part of January.

USD

But look what it's doing to the dollar as well, it's improving the position the dollar. So for those long dollar positions you are making money.

This is the euro trading lower against the US dollar (EUR/USD) at 9647. Not quite as low as the two decade low that we saw earlier in the month at 9536.

But we are on the way down so you can see that we have a lot of movement in the wake of that stronger than expected CPI number that we've seen in the United States. It's negative equities, but it's positive for the dollar.

[MongiIG]

US Inflation at 8.2%, Dollar and S&P 500 on Diverging Paths on Hot CPI

Oct 13, 2022 | Full article on DailyFX
Diego Colman, Strategist

SEPTEMBER INFLATION KEY POINTS:

• September U.S. inflation rises 0.4% on a monthly basis, bringing the annual rate to 8.2% from 8.3% in August, topping expectations
• Core CPI climbs 0.6% month-over-month and 6.6% compared to one year ago, exceeding forecasts
• Stubbornly high price pressures in the economy should keep the Fed on hawkish path, supporting the U.S. dollar while creating a challenging environment for stocks

 

INFLATION CHART

 

Source: Trading Economics

MONETARY POLICY OUTLOOK

All things considered, there is not much to celebrate in today's CPI report. While the headline index eased at the end of the third quarter in annual terms, the core indicator retained strong momentum, especially the sticky rental component, suggesting that the broader trend remains biased to the upside for now.

In the current environment, the Fed may have no choice but to continue raising rates aggressively to bring monetary policy to a sufficiently restrictive level and keep it there for some time in an effort to curb inflation via demand destruction. This means that a "dovish pivot" is unlikely to materialize in the near term, even if tightening financial conditions lead to a painful recession.

[MongiIG]

Data Coverage: September US Inflation Report