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Taking stock from last week, we had some very interesting data and events out of the US and we expect that the events from last week will be tested over the next month. One of the key events from last week was the FOMC meeting where the US Fed raised interest rates by 25 basis points, as the market expected. The market was in agreement that this will be the last hike by the Fed – the Fed will now wait and see what the effect will be of the strong hiking cycle it has embarked on during the past 12 months as the hikes start to wash through the markets. US CPI Expected to Hold |
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The first notable US release after the FOMC was the US non-farm payroll number that beat expectations for the umpteenth time, which is unprecedented, and unemployment also beat expectations. This would have made the Fed sit up and take notice – the stronger labour market would mean that inflation will be sticky as wage pressure will still be firmly entrenched in the economy. There was an anomaly in the unemployment rate with the devil in the detail being that the workforce size shrunk in the US, which could have skewed the number a little. However, the real test will be today with the US CPI print and expectations that inflation would print at 5.0% as it did last month. Should there be an upward tick in the number it could throw the Fed halt into question and calls will come from the markets that a further hike is needed. The opposite is also true should the number print better than expected this would only strengthen the markets view on the Fed pausing its interest rate hikes. We can expect the US dollar to be volatile in and around the number and this could lead to significant moves in the market and currencies like the rand could be under more pressure. |