• US CPI Y/Y 2.2% vs 2.2% exp; Core Y/Y 1.8% vs 1.8% exp
  • Trump unexpectedly fires Secretary of State Tillerson
  • Precious metals surge higher, USD falls back

An unexpected announcement from Trump has caused some volatility in the last hour with news that CIA director Mike Pompeo will replace Rex Tillerson as Secretary of State stealing the limelight from a CPI print that was inline with forecasts. The US president made the news public via twitte, posting the following:

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 Trump tweeted the news of a reshuffle not long after the IS data release. Source: Twitter

Let’s look back at the data itself with the CPI Y/Y coming in as expected at 2.2% and the core reading matching forecasts at 1.8%. The Fed have publicly referenced the PCE core measure of inflation more often than the CPI, but these do exhibit a fairly strong positive correlation.  

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CPI Y/Y remains above the 2% target but it is not accelerating as some feared. Source: XTB Macrobond

Looking more closely at the core reading there appears to be a greater divergence between the CPI and PCE metrics, with the former opening up a sizable gap above the latter. A similar gap opened up back in late 2014 and this preceded a steady run higher, so this is certainly something to keep an eye on going forward. 

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 CPI core has diverged above PCE core and could signal that the latter is set to rise going forward. Source: XTB Macrobond

Gold and Silver were already making steady moves higher, with the USD falling when the news broke and these impulses received a further boost by the tweet. Gold is up more than $10 since the low shortly after the CPI data was published and the market reaction seem to be strikingly similar to that following the NFP report last Friday. Whilst inflation is relatively high, it is not showing the sort of acceleration that would warrant a faster than expected pace of tightening this year – IE 4+ hikes. 

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 Gold has surged on both the CPI data not showing an increase and the Trump tweet raising concerns of political instability in the White House. Source: xStation

 Gold appears to have bounced from the key support region identified yesterday from 1303-1312 and could now be set to move higher. 

One market that is a little mixed on these developments is the US500 which first rallied strongly on the CPI data not increasing and therefore a dampening of fears that Fed will tighten more quickly, before it fell back on the Trump tweet. The Wall Street open is just 10 minutes away at 13:30 and it will be interesting to see how it reacts once the cash session is underway.