The US Bureau of Labor Statistics has entered the fray. According to data released on Thursday, the inflation rate in the world’s largest economy has increased beyond analysts’ expectations. The month-on-month December inflation rate came in at 0.3% compared to the expected 0.2%. The year-on-year inflation rate also beat expectations, coming in at 3.4% as opposed to 3.2%. CPI also came in hotter than expected.
The market reaction was once again somewhat unexpected. Last week’s strong employment data did nothing to temper traders’ expectations of future interest rate cuts, instead preceding a surge in the Dollar. It is a similar story this week; hotter than expected inflation is the last thing people want to hear if they are betting on the Fed implementing monetary easing any time soon and yet the DXY finished almost entirely flat on the day.
There was no lasting fear in stock markets either. Despite intra-day dips in all major US indices, most ended the day exactly where they started it. The threat of continued high interest rates markedly absent. This is in stark contrast to European markets, which all fell sharply on Thursday, following the bearish path more commonly taken during times of monetary tightening. In Asia, markets followed another path entirely. The Nikkei 225 continued to push higher this week, closing Thursday 1.77% in the black before opening Friday’s session higher still. The Hang Seng Index also fared well, gaining 1.27% on the day.
It would appear that markets are content to do as they please for the time being, if that means ignoring the greater macroeconomic landscape then who are we to say otherwise.
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