Exploring the softer side – ING

The softer inflation trend will be music to the Federal Reserve’s ears, notes Chris Turner, FX strategist at ING.

More data for the market to grind

“Core inflation is running at an annualized three-month rate of 1.6%. Most components of this week’s PPI and CPI releases point to a target release of 0.2% month-on-month in core PCE inflation data from July to August 30. Markets should now expect a dovish comment from the Fed. And of course, the Fed’s Jackson Hole Economic Symposium next week presents an opportunity.”

“Attention turns to speed of Fed rate cuts. Yesterday the Reserve Bank of New Zealand made a hasty call to cut the policy rate from 5.50% to the neutral rate of 3.00%. It only cut 25bp yesterday, but had discussed a 50bp cut. True, New Zealand’s (small, open) economy is very different from the US (large, closed), but the RBNZ shows an example that central banks can change narratives quite quickly.”

“Activity data will now determine whether the Fed cuts by 25 bps or 50 bps in September. August jobs data on September 6 will have a big say here. Before that, retail sales for July are being reported today. A rebound in auto sales is expected to support the headline number, but the market will focus on the retail sales control group. The market will also pay close attention to initial weekly claims.”