Markets cheer softening US inflation

Risk assets are pointing to a positive US open after the just-released July CPI report. The subdued core print is especially encouraging, as it raises hopes that further Fed rate hikes are now off the table. US stock futures and gold are up, while the US dollar is threatening to erase all of this week’s gains.

Beyond this initial reaction, markets are cognizant that another set of jobs and inflation data are due prior to the Fed’s next rate decision in September. There is also the small matter of the Jackson Hole symposium at the end of this month where markets get to hear from Fed Chair Powell.

If the tier-one data for August continue to demonstrate that Fed policy tightening is having the desired effect of further subduing inflation, that should be cause for further rejoicing in the markets, as hopes for a “soft landing” will be fortified.

However, should the inflationary pulse threaten to make a comeback in the world’s largest economy, that may force the Fed into yet another hike later this year, a decision that would further curtail risk-taking in global financial markets.