US CPI Cools Again

US stocks have broken out to fresh record highs today on the back of yesterday’s US CPI and FOMC double-event. Annualised CPI was seen cooling for a second month in a row to 3.3%, down from 3.4% prior and expected. The US Dollar fell sharply initially as traders ramped up near-term easing expectations on the back of the inflationary fall. Despite the data, the Fed caught traders somewhat off-guard, striking a more hawkish tone than many were expecting while keeping rates on hold, in line with forecasts.

Hawkish Powell Comments

Powell warned that the Fed’s easing cycle might need to be delayed given the slow progress with getting inflation back to target. Yesterday, Fed policymakers upgraded their inflation forecasts for the year ahead while slashing the bank’s dot plot forecasts, now projecting just one rate-cut this year, down from 3 prior. Despite this hawkish development, Powell noted that the Fed’s outlook on rates was conservative, and more rate cuts could still happen if inflation begins to fall faster.

PPI Data Due Next

USD was seen retracing some of its losses yesterday in response to Powell’s comments. However, stocks remain firmly supported today, suggesting that traders are focusing on the drop in inflation for now and the fact that the Fed is still on course to cut rates this year. Looking ahead today, focus will be on PPI with any fresh weakness in this reading likely to push USD back down, giving stocks a fresh boost.

Technical Views

Nasdaq

The rally in the Nasdaq yesterday saw the index gapping higher, with price testing the upper limits of the bull channel once again. Momentum studies remain bullish here, keeping the focus on further upside while we hold above the 18.912.17 level and the bull channel lows. 

(Click on image to enlarge)

More By This Author: