Analysts at Danske Bank offer a brief analysis of the latest US consumer inflation figures released on Thursday, which now seems to have revived bets for further policy tightening by the Federal Reserve (Fed).
“The big event for global macro and markets over the last 24 hours has been the release of September CPI data out of the US. While core inflation was in line with expectations at 0.3% m/m the headline measure surprised consensus by 0.1pp to the topside at a 0.4% m/m reading corresponding to 3.7% y/y. The data release triggered a sharp reaction in bond markets where yields rose and the curve bear steepened which then transmitted to worsening risk appetite across asset classes, incl. a stronger USD.”
“While the market reaction was to price in a higher probability of another rate hike from the Federal Reserve - now priced at roughly a c. 40% probability - we highlight the importance of the inflation details. Indeed it was primarily shelter that posted a surprise rise after several months of declines. Not only do we see signs from other indicators that this spike is unlikely to prove persistent but we also highlight that the underlying measures of inflation that the Federal Reserve normally refer actually came in fully in line with expectations. In that regard, we still maintain our call that we have already hit a peak in US policy rates.”
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