US inflation watch: market sees 7% CPI as dovish

US CPI rose in December by 7% year-over-year, the hottest in 40 years and in line with expectations. More pressingly, core month-on-month rose at a faster clip than expected, +0.6%, hinting there is no evidence of any meaningful cooling in inflation pressures.

US inflation

Many think the top is approaching but I just don’t buy it – the dynamics have changed unless the Fed goes bigger than it currently plans – 50bps hike in March would be a start. Core rose 5.5% year-on-year. The absence of any upside surprise to the headline number left markets on a pretty even keel – NDX rose, the dollar declined – as investors seemed to lean on this not forcing the Fed into acting swifter/harder than is currently expected.

Net reaction is dovish: yields lower with dollar, tech and Bitcoin are bid – clear reaction here on the 5-minute chart here for NDX futs.

Nasdaq Chart 12.02.2022

Dollar index is lower, testing its 23.6% retracement and trend support. Big level here, bearish MACD crossover is still the driver, RSI far from oversold. Break here could be chased to the 100-day at 94.60.

Dollar Chart 12.01.2022