The focus will shift today to the release of US CPI (inflation) data, with the annualized rate expected to remain unchanged.
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Markets will be focusing today on the upcoming release of US CPI (inflation) data. It is widely expected that the annualized rate will remain unchanged at 2.4%, with month-on-month CPI expected to show an increase of 0.3%. If the data is higher than expected, that could boost the USD and sink US stocks; if lower than expected, the opposite will be likely.
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The big news yesterday was the announcement of a trade deal between the USA and China, who have been engaged in a noisy and destructive trade war since Trump took office in January. It was agreed that during an upcoming 90-day period for further negotiations, the US would drop tariffs on Chinese imports from 145% to 30%, while China would drop tariffs on US imports from 125% to 10%. The US Dollar and US stock markets immediately jumped and held these increases, with the NASDAQ 100 Index up by 4.4% on the day and the S&P 500 Index closing higher by 3.3%. Asian stock markets have mostly continued this rally, although Chinese indices are trading lower today. This news is likely to be bullish for global risk-on sentiment generally, including stock markets.
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Following yesterday’s trade deal between the USA and China, markets are now expecting only 2 US rate cuts over the course of 2025, at 0.25% each, according to the CME FedWatch tool. The first cut is not expected until September.
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In the Forex market, since today’s Tokyo open, the Australian Dollar has been the strongest major currency, while the USD has been the weakest, putting the AUD/USD currency pair in focus – the Aussie typically gains when global risk sentiment improves. However, it can be said that the USD strength we saw yesterday is likely to hold up over the coming days.
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Bitcoin dropped quite sharply yesterday after coming close to testing its record high made a few months ago after making a bullish breakout beyond its former key resistance level at $95,206. This may be partly due to USD strength but can be seen as a sign that Bitcoin bullishness is muted, as other risky assets advanced yesterday on the trade deal news.
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There will be a release today of UK Claimant Count Change (unemployment claims) data.