Introduction: The US Federal Reserve (FED) spoke last week, and the US federal funds rate was left unchanged at its level since last December. Unlike the European Central Bank (ECB) and other major central banks, the FED has yet to resume cutting its interest rate, despite intense verbal pressure from Donald Trump.
This week (May 12), it's the CPI US inflation update that is the fundamental highlight of the week. Indeed, Jerome Powell is demanding more confirmation of disinflation to consider resuming rate cuts.
1) US inflation rate resumed its decline this spring according to the CPI and PCE inflation indices
High-finance circles are astonished by the FED's slowness to match the ECB's rate cuts, when the downward trend in inflation curves has been confirmed in the US by the latest updates of the PCE (the FED's favorite inflation index) and the CPI.
But it seems that Jerome Powell's FED is waiting to see the outcome of the trade diplomacy to be sure that the tariff war will not push inflation back up.
The chart below shows the curves for nominal US inflation and underlying US inflation, and their update on Tuesday May 13 is the dominant fundamental factor of the week. If the fall in the inflation rate is confirmed, the likelihood of the FED cutting its interest rate in June or July will increase, and vice versa.
2) Real-time inflation indicators are optimistic
There are a number of real-time inflation indicators, most of which are ahead of official inflation. This is particularly true of TRUFLATION, the real-time measure of true US inflation, which is already below the FED's 2% target, thanks in large part to the fall in oil prices and the decline in real estate inflation.
3) But fears of a rebound in inflation are strong, especially among US consumers.
But we must remain cautious, as there is a risk of inflation rebounding in the coming months. This risk is present as long as the United States has not signed trade agreements with its main trading partners, notably China and the European Union. It is essential to limit tariffs as much as possible to neutralize any risk of a rebound in inflation, a real risk if US consumer inflation expectations are anything to go by.
Conclusion: US CPI inflation on Tuesday 13th should therefore be kept under very close watch. Confirmation of a fall in the inflation rate would be good news for the equity market, as it would bring the next FED rate cut closer in time.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
This week (May 12), it's the CPI US inflation update that is the fundamental highlight of the week. Indeed, Jerome Powell is demanding more confirmation of disinflation to consider resuming rate cuts.
1) US inflation rate resumed its decline this spring according to the CPI and PCE inflation indices
High-finance circles are astonished by the FED's slowness to match the ECB's rate cuts, when the downward trend in inflation curves has been confirmed in the US by the latest updates of the PCE (the FED's favorite inflation index) and the CPI.
But it seems that Jerome Powell's FED is waiting to see the outcome of the trade diplomacy to be sure that the tariff war will not push inflation back up.
The chart below shows the curves for nominal US inflation and underlying US inflation, and their update on Tuesday May 13 is the dominant fundamental factor of the week. If the fall in the inflation rate is confirmed, the likelihood of the FED cutting its interest rate in June or July will increase, and vice versa.
2) Real-time inflation indicators are optimistic
There are a number of real-time inflation indicators, most of which are ahead of official inflation. This is particularly true of TRUFLATION, the real-time measure of true US inflation, which is already below the FED's 2% target, thanks in large part to the fall in oil prices and the decline in real estate inflation.
3) But fears of a rebound in inflation are strong, especially among US consumers.
But we must remain cautious, as there is a risk of inflation rebounding in the coming months. This risk is present as long as the United States has not signed trade agreements with its main trading partners, notably China and the European Union. It is essential to limit tariffs as much as possible to neutralize any risk of a rebound in inflation, a real risk if US consumer inflation expectations are anything to go by.
Conclusion: US CPI inflation on Tuesday 13th should therefore be kept under very close watch. Confirmation of a fall in the inflation rate would be good news for the equity market, as it would bring the next FED rate cut closer in time.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.