US inflation comforts markets

US consumer inflation crushes estimates

The buy everything trade returned with a vengeance overnight, greenlighted by higher than expected US Inflation and Core Inflation. Both the month-on-month and year-on-year metrics outperformed with the YOY Core Inflation, notably, rising 1.60%, well above the 1.10% expected. Wall Street rallied strongly, with the S&P 500 flirting with all-time highs, the US dollar fell, and precious metals staged an impressive comeback from their capitulation sell-off the day before.

Digging into the numbers, healthcare, food and housing have unsurprisingly risen. Energy, meanwhile, has fallen massively on a YoY basis, reflecting the collapse in oil prices. The dataset mostly reflects the rebound in consumer spending that has been telegraphed by other data from June to July. More consumers spend, prices go up; economics 101.

Australian employment data also outperformed this morning. Both full-time and part-time jobs rose above expectations, although the unemployment rate remained stubbornly high at 7.50%. The data follows an even more impressive rise in the June data. Again, before everyone gets excited and starts mumbling V-shape under their breath, a dose of reality. The June and July data likely reflects the easily gained peace dividend of Australia reopening after earlier national Covid-19 lockdowns. Equally impressive gains will be much harder to come by in the months ahead.

New Zealand is in the spotlight this morning and rightly so. More community cases of Covid-19 in Auckland have been recorded. Auckland is in partial lockdown to control the outbreak. The government has already telegraphed that new cases reported outside of Auckland will result in a return to national movement restrictions. That is likely to weigh on New Zealand equities and the currency today, with New Zealand’s tentative recovery in grave peril should the worst occur.

Europe publishes inflation data from across the continent today, and it will be interesting to see if the rises of last month are reflected in today’s data. Again, the increases seen previously likely reflect the reopening of economies across the Eurozone, and the subsequent upswing in spending on goods and services. Sagging data may lead to pressure on the euro, implying as it does, a swift return to near deflationary business as usual that has bedeviled the Eurozone over the past years.

US weekly jobless data will be the centre of attention this evening. Markets are pricing in Initial Jobless Claims and Continuing Claims to remain stuck at 1.2 million and 16 million respectively. President Trump’s cobbled together pay-cut stimulus follow-up, while better than nothing, will have no noticeable impact this week. That said, given the market’s buy every mood, a fall in the headline numbers is likely to more FOMO momentum. Perhaps Tesla will have another daily 14.0% rise in its share price?

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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