Ahead Today
G3: US PPI, US Initial Jobless Claims
Asia: India trade
Market Highlights
The July 2026 US CPI data printed roughly in line with consensus expectations, with headline inflation decelerating to 3.4%yoy from 3.5%yoy in June. More importantly, core inflation rebounded to 0.21%mom, with the underlying components revealing a mixed set of factors. There was some stickiness in medical care services and also a pickup in core goods inflation driven by a rise in consumer electronics prices, but this was tempered by softer hotel and accommodation services perhaps driven by some reversal in impact from the World Cup coupled with softer transportation services inflation.
From a market perspective, these numbers initially lead to US rates curve moving lower coupled with some Dollar selling, but this faded throughout the session with some Dollar buying coupled with the back-end of the US rates curve remaining sticky more so than the front-end. Pricing for US Fed rates moved lower slightly in the front-end but over in the back-end markets continue to price for around 1.5 hikes into next year.
Looking ahead to the September FOMC meeting, this inflation print should allow the FOMC to remain on hold for now but is probably not enough to shift positions at this time. The primary dilemma for the FOMC now lies in weighing the inflation print against a softening labour market, particularly following the weaker than expected July NFP report released last Friday. Given that headline inflation remains uncomfortably above target at 3.4%yoy while core inflation has been gradually declining since May’s peak of 2.9%yoy, we think that the FOMC is likely to maintain a restrictive holding pattern in September rather than a pivot towards a hike.
Meanwhile in India, July CPI printed at 4.45%yoy, marginally below consensus estimates of 4.5%yoy but accelerating from 4.38%yoy in June. Food prices drove the uptick, with consumer food inflation rising to 5.52%yoy from June’s 5.32%yoy, highlighting vulnerability to weather and external shocks. Although headline inflation remained above the maintenance level of 4.0%yoy for a second consecutive month, it is still comfortably within RBI’s target inflation band of 2-6%. We believe that the RBI will continue to maintain its neutral stance for now, but we see some signs that inflation is likely to broaden out more moving forward given firm domestic demand, accelerating credit growth and overall supportive fiscal position. We continue to see RBI hiking rates by 50bps this cycle but we have recently pushed out the timing of hikes to start from December 2026 instead.