All eyes on US CPI release

A largely positive starting in Europe has seen the likes of the FTSE 100, eurostoxx, CAC, and Ibex all on the rise. It comes off the back of an Asian session that saw yet another surge for the Nikkei 225, with the index having gained over 4% in the last two sessions thanks to a falling yen and trade optimism. Elsewhere in Asia, the news of an additional 90-day trade truce between the US and China helped lift sentiment, highlighting the fact that the Chinese will continue to receive special treatment after Xi Jinping tightened rare earth exports to the US. With Trump seeking to bring key industries back to the US, the Chinese rare earth restrictions would have reminded the President that without those resources, they US will find it difficult to expand in areas such as technology, defence, EV’s, and energy.

Today’s better than expected jobs data out of the UK helped alleviate some of the fears of economic deterioration that have grown prevalent over recent months. Negative growth, high debt, and high inflation have made for a difficult puzzle for both the treasury and Bank of England to solve, and Thursday’s growth figures will be watched closely to see if there is a third consecutive negative monthly GDP print. Nonetheless, the recent rise in unemployment had provided a warning sign over the potential deterioration in the jobs market. Thankfully today’s bumper 238k employment change metric (9-month high) has helped alleviate any fears of a meaningful downturn in the UK jobs market for the time being.

Looking ahead, todays US CPI inflation release provides us with fresh insights over the direction of travel for US prices given the trade measures implemented by the president. Last month’s 0.3% monthly CPI figure represented the highest in five months, with underlying metrics highlighting particular gains in tariff related goods such as clothing and consumer electrics. Given the fact that many businesses would have stockpiled ahead of Trump’s tariffs, there is likely a lag between implementation and the point of which those businesses start paying the new rate for imported goods. With that in mind the possibility of a rebound in US inflation remains a significant risk for markets, calling into question the recent payroll’s led spike in rate cut expectations.