Financial Markets React to US CPI Data: What to Watch on September 12
The financial markets took a cautious turn after the release of the US Consumer Price Index (CPI) for August. The annual CPI increased by 2.5% year-over-year, slightly lower than the previous 2.9%. The core annual figure remained steady at 3.2%, but the monthly core increase exceeded expectations at 0.3%.
Despite the CPI figures meeting expectations, investors quickly shifted to safe assets, dismissing the possibility of a 50 basis points rate cut by the Federal Reserve in the upcoming meeting. Instead, a 25 bps cut is now fully priced in as policymakers are expected to gradually ease monetary policy.
Stock markets initially saw significant losses following the data release, but Wall Street recovered slightly by the end of the day. US Treasury yields hit fresh 52-week lows before bouncing back slightly. The 10-year Treasury note now yields 1 bps more than the 2-year note, indicating limited recession fears.
In the currency market, the EUR/USD pair hovers around 1.1020, while GBP/USD found support at 1.3000 and trades around 1.3050. Commodity-linked currencies like AUD/USD and USD/CAD benefited from the bounce in stocks.
Gold prices surged during the risk-off sentiment, reaching $2,500 before settling around $2,515.
Upcoming events on Thursday’s macroeconomic calendar include Australian Consumer Inflation Expectations, US Producer Price Index (PPI), and the European Central Bank (ECB) monetary policy decision. The ECB is expected to cut the three main interest rates by 25 bps each.
Analysis:
The financial markets reacted to the US CPI data, causing a shift towards safe assets and impacting stock markets, Treasury yields, and currency pairs. Investors are now anticipating a 25 bps rate cut by the Federal Reserve instead of the previously expected 50 bps cut. The upcoming ECB monetary policy decision will also be closely watched. It is essential for investors to stay informed about these developments to make informed decisions regarding their investments and financial strategies.