Volatility in US equity markets now seems a permanent feature of the investment landscape with yet another 200+ points range for the Dow Jones Industrial Average and 25 points for the S&P 500 Index. Indeed, for the whole of last year, the S&P 500 gained or lost more than 1% on a single day 8 times, the least since the mid-'60s. There have already been 27 1% moves in the first 67 trading days of 2018. Against this background, the performance of the US Dollar looks pretty tame and although it broke down briefly on to an 88 ‘big figure’ on Wednesday, its entire range over the last two weeks has been less than 1¼ points. It opens this morning exactly unchanged from its level 24 hours ago.
The latest US inflation figures came in pretty much in line with consensus expectations, albeit the headline CPI number fell -0.1% against a median forecast of unchanged on the month. The annual rate rose as expected from 2.2% in February to 2.4%. Stripping out the often-volatile food and energy components, core CPI rose 0.2% on the month to take the annual rate up from 1.8% to 2.1%. The main reason for the jump in the annual rate is fairly well-known; this time last year saw some aggressive price reductions for cellphone plans and as the falls now drop out of the y/y calculation, so the annual rates jump. Fed Chair Jerome Powell explicitly referenced this in his speech last Friday. Just because it is well known by policymakers and analysts doesn’t mean that everyone is aware of it, though. With both the headline and core measures now above 2%, surveys of consumers will now be very closely watched for any sign that they are revising up their own expectations of future inflation because of what is happening currently. If they do, then investors will have to start thinking about 3, rather than 2 more Fed hikes for the rest of 2018.
Arch-dove Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, is due to speak this afternoon and we’ll also have the latest weekly initial jobless claims numbers. Otherwise, the economic data calendar in the United States looks pretty thin on Thursday and investors, instead, will be more focused on the POTUS Twitter feed to see which of the current disputes with China, Russia and Syria are most likely to be escalated. The USD index opens in Europe this morning at 89.20.