CPI Or PCE?

Non-farm payrolls gave a lift to risk assets on Friday another strong jobs number came with moderating wages. Early moves in the new week have been modest. CFTC positioning data generally showed a shift towards neutral. Ahead of Tuesday’s release of US CPI, Ashraf posted a chart below, highlighting the course of US CPI, core CPI and the core PCE (Fed’s inflation gauge). Which one leads the other? The answer is clear with the help of a few vertical lines. There are currently 11 Premium trades in progress; 7 in the green, 2 even and 2 in the red.

Non-farm payrolls rose 313K compared 205K expected in another sign of solid economic growth in the United States. A month ago, that was accompanied by a rise in wages that contributed to a wave of volatility throughout markets. This time, wages rose 0.1% m/m compared to +0.2% expected and 2.6% y/y versus the 2.8% consensus. More on the jobs/earnings report here.

The reaction was a jump in the S&P 500 climbing 1.7% and AUD/JPY positing its best day since July. It was the classic risk-on response and it hints that growth can continue to improve and the Fed doesn’t need to quicken the gradual pace of rate hikes.

The response underscores how dominant the inflation theme is for markets right now. At the same time, geopolitics remains a constant risk as North Korea and the circus in the White House continues.

Ashraf Laidi
Ashraf Laidihttp://ashraflaidi.com/
Ashraf Laidi is an independent strategist and trader, founder of Intermarket Strategy Ltd and author of "Currency Trading & Intermarket Analysis". He is the former chief global strategist at City Index / FX Solutions, where he focused on foreign exchange and global macro developments pertaining to central bank policies, sovereign debt and intermarket dynamics. Ashraf had also served as Chief Strategist at CMC Markets, where he headed a global team of analysts and led seminars and trainings in four continents. His insights on currencies and commodities won him several #1 rankings with FXWeek and Reuters. Prior to CMC Markets, Laidi monitored the performance of a multi-FX portfolio at the United Nations, assessed sovereign and project investment risk with Hagler Bailly and the World Bank, and analyzed emerging market bonds at Reuters. Laidi also created the first 24-hour currency web site for traders and researchers alike on the eve of the creation of the euro. Laidi's analysis of currency markets stand out based on his distinct style in bridging the fundamental and technical aspects of the markets. Laidi regularly appears on CNBC TV (US, Europe, Arabia and Asia/Pacific), Bloomberg TV (US, Asia/Pacific, France and Spain), BNN, PBSs Nightly Business Report, and BBC. His insights also appear in the Financial Times, the Wall Street Journal and Barrons. He has given numerous interviews and lectures in Arabic, French, and to audiences spanning from Canada, Central America and Asia/Pacific.

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