Markets react to CPI data

The April US CPI figures will come as something of a welcome relief to FOMC members, snapping a run of three consecutive hotter than expected prints.

Headline CPI cooled to 3.4% YoY, from a prior 3.5%, while the MoM headline figure came in softer than expected at 0.3%. More pleasingly, core CPI fell to 3.6% YoY, its lowest level since May 2021.

Naturally, the market has undergone a dovish repricing, with the USD OIS curve now pricing around 50bp of easing this year, in line with what the FOMC’s revised dot plot at the June meeting will show as a median expectation.

Nevertheless, one swallow doesn’t make a summer, hence while today’s data will be welcomed, it is – on its own – not enough to provide policymakers with the required confidence to deliver a rate cut just yet.

The direction of travel, however, remains towards a cut, most likely in September, barring significant labour market weakness before then, which should remain supportive of risk appetite, with the path of least resistance for equities continuing to lead to the upside.