US Core CPI Annual the key to US FOMC

By March 16, 2016Uncategorized

SHORT ANSWER
Volatility (possibly two spikes) but not sustained directional price action.

LONG ANSWER
 US inflation a toss up with today’s core CPI annual the tiebreaker.
Expect markets to react to anything different than the 2.2%

HIGHER CPI
A higher number (2.3 or more) would drive the USD higher and DOW lower for sure (I think)
Would indicate the interest rate hikes sooner

So higher than expected core CPI annual sell AUD and NZD

US economy looks OK from jobs perspective but GDP, retail sales, others don’t tell the
bullish story; think most players assume the US employment numbers are not telling

an accurate story of the state of the US economy.

So I think inflation is key here.

If CPI does tick up then by the time we get to FOMC statement , economic projections,
and Yellen we are dealing with a different technical setup and that requires knowing
what that is to speak accurately about a view…
LOWER CPI
If CPI surprises to the downside 2.1 or less the USD will go down and the DOW will increase
on decreased interest rate hike expectation for sure (I think). That should result in a
higher AUD and NZD. Same story in  terms of the FOMC later in the day

By the way the view for CAD is the same as AUD and NZD, adjusted for oil price (could
enhance or contract from the view…)

AS EXPECTED CORE CPI
2.2 core US core CPI annual (as expected)
Then nothing changes leading into the FOMC

If that is the case then I think the 60 minutes following the FOMC statement (and most of
Yellen’s press conference) will be mean reverting. Meaning if there is a significant move
(or two) it (they) will retrace or reverse because overall the FOMC will be vague and not
trade direction conclusive.