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CPI Driven Volatility

Yesterday saw widespread volatility across all asset classes as traders digested the latest US inflation figures. There has been plenty of attention on the Fed recently given the wealth of Fed commentary we’ve had and the seemingly more hawkish tilt to much of it. Many Fed members, including Chairman Powell, have been heard recently warning that it is still too soon to call victory on inflation. As such, Powell and co warned that further tightening might still be needed in order to bring inflation firmly back down to target.
 

US Inflation Drops

However, yesterday US inflation data served as hard evidence against that view. Headline CPI fell back to 3.2% YoY, down from 3.7% a month earlier, below the 3.3% the market was looking for. Indeed, the monthly headline reading printed 0% from 0.4% prior with core down to 0.2% from 0.3% prior.
 

Fed Outlook Shifting

The data saw traders quickly repricing their Fed rates outlook with market pricing for a further hike plummeting and pricing for rate cuts over H1 jumping. The market reaction saw USD heavily sold with risk assets moving higher across the board. The Nasdaq was a key beneficiary of this dynamic with the index gapping higher at the open, now testing the YTD highs. While USD weakness continues and the focus remains on rate-cut pricing, the index looks set to continue higher near-term.
 

Technical Views

Nasdaq

The rally in the Nasdaq has seen price breaking out above the corrective bear channel top (bull flag) and breaking above the 1.5277.07 level, signaling a resumption of the bull trend. The market is now testing the 15925.08 level highs and with momentum studies bullish, the focus is on a break higher here and a move up to the 16635.80 level beyond. 

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