Either way, oil markets were pretty sanguine on developments overnight – with U.S. crude prices only up about 2%, stuck in the same range seen for the past month and still down 6% year-on-year. Gold prices popped by even less.
Whether re-routed shipping stokes price rises in other goods is an open question, but it has not filtered through to wider market sentiment yet.
Even the slightly hot U.S. consumer price inflation report for December was batted away quite quickly on Thursday. U.S. annual headline and core inflation rates were a smidgen higher than forecast, even though the latter did indeed drop below 4% for the first time since May 2021.
Far from sowing seeds of caution in markets, Federal Reserve rate cut bets actually went up a gear. More than 150 basis points of cuts this year are back fully priced into futures curves, the odds on a March cut went up, and two-year Treasury yields dived to their lowest this year at 4.24%.
The rates retreat buoyed Wall St stocks, which closed only marginally in the red, and knocked back the dollar a bit. Futures are flat ahead of Friday’s open.
With weekly jobless updates also sparky, it was less than clear why markets reacted to an irksome CPI that way.
While not yet chiming with market easing bets, Fed officials didn’t seem bothered enough by the CPI readout to change their existing tone and some economists, such as Deutsche Bank, reckoned an outsize spur to CPI from shelter prices is less of an issue for Fed-favoured PCE inflation measures.
“When we have weeks or months of data to come, I don’t like tying our hands,” Chicago Fed boss Austan Goolsbee told Reuters. “We don’t make decisions about March, June and whatever, in January.”
Whatever the real reason for the market take, they get a second view of inflation pressures later on Friday as a likely more subdued U.S. producer price report for December is released.
