Summary:

• US CPI 2.1% Y/Y vs 1.9% exp
• Core reading also beats coming in at 1.8% vs 1.7% exp
• US indices and Gold plummet as yields spike higher

Given the recent moves in the markets today’s US data had the potential to cause some high volatility and it didn’t disappoint. The main takeaway from the releases was the increase in inflation as shown by the CPI beating forecasts which supports the rise seen in average earnings earlier this month and has rocked stocks once more. 

Turning to the data itself the CPI Y/Y rose by 2.1% which was in line with the prior reading  but against consensus forecasts for a fall to 1.9% it is a shock to the upside. The core reading also surpassed expectations in coming in at 1.8% compared to 1.7% expected and the data provides more evidence of growing inflation in the US. 

 US CPI Y/Y remained inline at 2.1% but against calls for a drop this was better than expected. Source: XTB Macrobond

At the same time as the inflation data there was also the most recent consumer spending figures with the retail sales for January released. The M/M reading showed an unexpected drop of 0.3% compared to a forecasted rise of 0.2% and a prior reading of 0.4%. This metric has deteriorated of late and the latest data continues the trend lower. 

 Retail sales fell more than expected last month to continue the downtrend seen in recent months. Source: XTB Macrobond

The market reaction to the data has seen plenty of volatility in Gold and the USDJPY with the initial moves in each reversing with gold now back at the level it began after a $10 drop and the USDJPY back near its 15-month lows around the 107 handle. The most clea move has arguably come in stocks with the fears of rising inflation and increase in yield seeing the US500 drop sharply. The market fell almost 50 points in the 5 minutes following the data and whilst it has stabilised somewhat now it remains firmly lower on the day ahead of the cash open. 

 The US500 has reacted negatively to the data and fallen sharply since its release. Could we see similar declines ahead like those after the NFP print at the start of the month? Source: xStation