14 July 2021
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US inflation prints higher than forecast, Powell heads to the Capitol today

By Daniel Richards

  • US CPI came in higher than the market was expecting in June with headline inflation rising to 5.4% y/y from 5.0% in May and core CPI rising to 4.5% y/y from 3.8% in May. Both indices rose 0.9% m/m, still driven by re-opening price increases in airfares, accommodation away from home and food away from home.  Used vehicle prices surged another 10.5% m/m as well as car manufacturers have struggled with chip shortages.  Treasury yields rose on the higher inflation print, but are slightly lower this morning. US equity indices closed lower overnight.
  • Jerome Powell is due to give his semi-annual Humphrey Hawkins testimony today to the House Financial Services committee, before addressing the Senate Banking Panel tomorrow.  The market will be looking for his take on the latest inflation reading. 
  • China’s imports and exports grew faster than expected in June, allaying concerns about slower growth.  Exports jumped 32.2% y/y, beating the consensus forecast of 23.0% while imports rose 36.7% y/y in USD terms. The trade surplus widened to USD 51.5bn, the highest since January.  Some of the increase in the value of both imports and exports may be due to higher prices of raw materials. 

Today’s Economic Data and Events

  • 08:30 Japan industrial production (May) – no forecast
  • 10:00 UK CPI (June) forecast 0.2% m/m and 2.2% y/y
  • 16:30 US PPI (June) forecast 0.6% m/m and 6.7% y/y
  • 15:00 Central Bank of Turkey rate decision – forecast 19%
  • 18:00 Bank of Canada rate decision – forecast 0.25%
  • 20:00 Powell delivers Humphrey Hawkins testimony to House Financial Services committee
  • 22:00 US Federal Reserve releases Beige Book

Fixed Income

  • The UST curve moved higher overnight on June inflation coming in faster than expected (see macro above) and weak performance at an auction of 30yr bonds. Yields on 2yr USTs jumped almost 3bps to 0.2528% while the 10yr closed at 1.4166%, up 5bps. The 2s10s spread steepened but at 116bps still remains relatively flat compared with levels seen only around a month ago.
  • Our expectation is that UST yields have hit their bottom and that they will continue to push upward over the rest of the year. However, it’s unlikely to be a linear trajectory. Yields could dip on a disappointing jobs report or underperformance in upcoming inflation data, when the base effects of weak activity in 2020 will be less pronounced.
  • In the run up to regional Eid holidays, the primary market is quiet.


  • The strong inflation print and pop in UST yields helped to propel the dollar higher against peers. The DXY index rose 0.52% to 92.752, its largest single day move since mid-June. Combined with persistent anxiety over the spread of Covid-19 variants, the strong inflation numbers will help to set up near term bullish moves for the USD.
  • EURUSD provided most of the gains for the dollar, falling by 0.72% to 1.1776. Next week’s ECB meeting could see the central bank introduce more forthright forward guidance although president Christine Lagarde has seemingly been preparing the market for a potentially contentious meeting.
  • USDJPY rose another 0.2% overnight, its third day in a row of gains, as higher UST yields pulled funds toward the dollar. Among other majors, GBPUSD gave up 0.5% as fears grow that the UK could endure a enormous increase in Covid-19 cases when restrictions are lifted later this month.
  • Commodity currencies were off overnight with USDCAD rising 0.48%, AUD down 0.4% and NZD down nearly 0.5%. However, in early trade today the NZD has surged as the RBNZ has announced that it was bringing its QE programme to an end this month.


  • Gains seen in US equities earlier in the session on the back of positive earnings were later erased as the higher-than-anticipated inflation print came in, and all three major benchmarks closed down, following record closes for all three the day before. The Dow Jones lost-0.3% while the S&P 500 and the NASDAQ both ended the day -0.4% lower.
  • European equities had a fairly slow day even prior to the US inflation print. Many market participants will have been waiting for direction from the US, but the general trend was for a weaker performance even prior to the inflation print as there remain questions over the strength of the pandemic recovery amid many countries. The FTSE 100, the CAC and the DAX all closed flat (down -0.01%), while the composite STOXX 600 eked out a 0.03% gain.
  • Asian equities are lower in early morning trading, as the Nikkei is down -0.2%, the Hang Seng -0.7% and the Shanghai Composite -0.9%.


  • Oil prices bounced higher even as there are few immediate catalysts to push the market one way or the other. Brent futures rose 1.8% to USD 76.49/b while WTI added another 1.6% to USD 75.25/b. The market received a boost from an API report that indicated inventories fell by 4m bbl last week along with a draw of 1.5m bbl in gasoline stocks.
  • The IEA cautioned oil markets that the current OPEC+ impasse on output levels risks tightening balances “significantly” with the implication that high prices will persist. The agency revised up its demand expectation for 2021 by 40k b/d to 96.4m b/d and is projecting a return to 100m b/d of oil demand by H2 2022. The IEA also expects to see the current reticence among the shale patch in the US to higher output to wane by next year and estimates US output will reach a record by the end of 2022. 


Click here for charts and tables



Written By

Daniel Richards Senior Economist

Edward Bell Head of Market Economics

Khatija Haque Head of Research & Chief Economist

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