The US CPI report on Thursday will be a trading highlight, with expectations from the July report not being the same as trading it.
The consensus is +0.2% m/m, suggesting risky investments are a trade to acquire, as weakening the dollar, dropping yields, and increasing stocks may occur. A +0.3% reading could complicate matters, as the y/y number would rise to 3.4% with a +0.3% m/m, higher than the Fed’s target but not concerning. The Fed can easily ignore this if combined with deflation indicators in housing and used cars.

The August report, released before the Fed meeting, raises market concern due to six-week oil price increases, likely exceeding a 0.2% headline number.
Powell may justify in-line readings, but his dovish stance after consecutive high readings appears careless.

Risk assets may survive a +0.3% m/m reading, but bond vigilantes may disrupt this. The 10-year auction closed at 3.999%, indicating a significant demand for safe assets with 4% returns. This demand is unlikely to decline, This report focuses on core, interpreting composition, rounding, and the split between core and CPI. The main point is that risk assets are acceptable unless they are +0.4%.


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