Will the inflation report deliver?

European equity markets opened cautiously higher on Thursday, following a mixed session in Asia amid nerves around the US inflation release later in the day.

This inflation print has been the main topic of conversation all week. The jobs report last Friday changed the dynamic in the markets and ensured that not only was this CPI report going to be important but in all likelihood pivotal ahead of next month’s Fed meeting.

We’ve gone from inflation declining but the labour market being stubbornly tight to both appearing to sing from the same hymn sheet. Cracks are appearing in the economy following a very aggressive tightening cycle that’s leading to cooling demand, prices, and wage demands. Unemployment remains low as employers have been reluctant to lay people off but there’s every chance that will follow.

The Fed doesn’t want to be responsible for a needlessly sharp downturn and the lag effect of monetary policy means that is a risk when the central bank is raising rates as aggressively as they have been. Another good inflation report today, particularly on the core side, will give policymakers more than enough reason to slow the pace of tightening further and even lower the terminal rate projections in March if it continues.

Bitcoin buoyed by risk recovery

Bitcoin is capitalising on the improvement in risk appetite that we’re seeing in the broader markets, rallying more than 4% today before paring gains just shy of the December peak. After weeks of treading water between $16,000 and $17,000, cryptos have been given new life by the jobs report and the risk rally that has ensued. Another positive inflation reading today could see it trading at levels not seen since the early days of the FTX collapse. ​

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.

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• Source: https://www.marketpulse.com/20230112/will-the-inflation-report-deliver/