The US dollar (DXY) managed to hold onto key support at 102 despite lower-than-expected year-over-year (YoY) CPI data. Equities shook off the post-CPI bounce to trade back towards weekly lows, while treasury yields ripped higher, posing another headwind for equities.

The initial reaction to the miss in CPI played out as expected, with the DXY falling below key support at 102.

However, the markets were able to fade the initial reactions exceptionally fast and trade in the opposite direction. This is strange price action, as lower inflation would typically be a positive for risk assets like equities.

Similarly, despite a softer CPI number, US treasury yields managed to fade the CPI dip to trade back above the 4.1% for the 10-year. This push higher in both the dollar and US treasury yields posed an additional headwind for equities which has been susceptible to very choppy price action this week.

Equities continue to trade soft, with the S&P 500 and Nasdaq Composite both trading down over 1%. The biggest move this morning took place in China A50 where the news of a restructuring for property developer Country Garden was was punch through the 13000 support.

Commodities and currencies traded mostly mixed this morning, with mixed flows between base and precious metals, and the currency space seeing a few disjointed moves but nothing to get too excited about at this stage.

Earlier this morning we saw some very decent growth data for the UK. It seems that the lag of monetary policy tightening has not yet made its way into the economy just yet.

However, given the risk to the economy from the incoming mortgage issues, as well as the continued stretched long positioning, our preference is to look for Pound downside on bad data. Next week’s jobs and CPI data will be important to watch on that front.

For the day ahead, the only data that will be getting the market’s attention is the July US PPI data as well as University of Michigan Consumer Sentiment data.

However, given the market’s unorthodox reaction to yesterday’s CPI data, we would be very careful on trading today’s US data. When the market decides to trade the opposite way to what the data suggests we need to take a step back and give the price action some room.

This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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