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It’s been a pretty muted session with very limited newsflow and no economic data. Markets traded in tight ranges ahead of the US CPI report although we’ve seen some slight upside in the US dollar and equities with some downside in gold.
We still have the ECB decision coming up before the US CPI and Jobless Claims data, but it’s very likely to be a non-event not only because of the focus on the CPI but also because the central bank is in a hard pause mode.
In the American session, we get the US CPI and
Jobless Claims figures. The Core CPI Y/Y is expected at 3.1% vs 3.1%
prior, while the Core M/M figure is seen at 0.3% vs 0.3% prior. A soft
report will likely raise the probabilities for a 50 bps cut to around
40-60% and then WSJ’s Timiraos could “leak” again by how much the Fed is
likely to cut.
On the other hand, a hot report
won’t change anything regarding the 25 bps September cut but could
trigger a slightly hawkish repricing for the 2026 pricing (3 rate cuts
expected at the moment).
The US Jobless Claims
data will be released at the same time of the US CPI, so in case we get
big deviations, it might even steal the show. Initial Claims are
expected at 235K vs 237K prior, while Continuing Claims are seen at
1951K vs 1940K prior. There’s some uneasiness in relation to the actual
labour market state given two consecutive soft NFP reports.
The
Jobless Claims data is the most timely indicator we have on the labour
market and it hasn’t been flashing red. Sure, the data continues to show
a low hiring and low firing environment but nothing serious, especially
if taken together with the positive business surveys.
In
case we get strong data coupled with a hot CPI report, the hawkish
repricing should be more significant than just a hot CPI and in line
claims. Of course, if we get a soft CPI and soft claims, then the dovish
bets will likely increase. A soft CPI and strong claims could still see
the probabilities of a 50 bps cut increase but it should remain roughly
the same further down the curve.
This article was written by Giuseppe Dellamotta at investinglive.com.