By Daniela Sabin Hathorn, senior market analyst at Capital.com
US consumer inflation has come in softer than expected across the board, helping the easing narrative after weeks of data blackout had left markets shooting somewhat in the dark. As a result, equities regained some upside breaking away from the tightening consolidation range that they’d been in, with the dollar dipping alongside yields. The headline reading came in at 3% yoy, with markets expecting a rise to 3.1%. Given the Fed had already acknowledged they would allow for a period of above-target inflation whilst still adjusting the policy rate to the softening labour market, the risk was skewed to the upside if the data fell in-line or short of expectations, as has happened. With the data now out of the way, investors will look towards the FOMC meeting next week, as a strong earnings season provides a backdrop for equities to consolidate higher until then. Any misalignment between the central bank’s rhetoric and market expectations of the future rate curve could weigh on sentiment next week.
S&P 500 daily chart:
Past performance is not a reliable indicator of future results.
Meanwhile, gold has struggled to take advantage of the softer CPI data, with XAU/USD trading lower on the day despite a knee-jerk reaction higher on release of the data. The precious metal has been consolidating around $4,100 for the past few days as traders reassess the momentum on the back of this week’s historic fall. Fundamentally, the long-term drivers remain intact, but the moves seen this week have not been driven by fundamentals, as the lack of follow-through from the CPI data demonstrates. The market had been primed for a pullback following a period of overheating, so it may take a little longer for investors to feel confident in another attempt at pushing higher.
