Sticky inflation leads to risk market sell-off

US headline CPI printed at 3.1%, which was lower than the previous 3.4% but higher than the 2.9% expected. The headline month-on-month number was 0.3%, higher than the previous month's 0.2%.

Core CPI was 3.9%, higher than the 3.7% expected and in line with the previous print. However, the month-on-month number was high at 0.4% compared with the previous month's number of 0.3% and expectations of 0.3%.

Sticky inflation is stemming from shelter which increased 0.6% MoM, airline fares which were up 1.4% MoM and medical care rising 0.5% MoM.

There is mixed messaging between the CPI and PCE metrics, which means that the Federal Reserve is likely to remain wary. A march cut has been priced out by the market and now the prospect of a May cut has also retreated to a probability of just 38%.

In response the real rate jumped by almost 5% on the day to 2.02%, which impacted negatively on the risk markets. The SPX500 declined by 1.24% and the US30 dropped by over 500 points.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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