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NAB Morning Call
Inflation eases and fears subside
Jan 15, 2025
Ken Crompton, NAB’s market economist, shares insights on the recent CPI data, revealing its potential to prompt multiple Fed rate cuts this year. He discusses how declining inflation is impacting bond markets, causing yields to fall across the globe. Crompton also highlights the surprising employment data from Australia, pondering whether it indicates a tight labor market or prompts a shift in the RBA's inflation views. The geopolitical ceasefire in the Middle East barely affected market responses, with optimism prevailing in equities and bonds.
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Quick takeaways
- Easing inflation in the US and UK has significantly reduced market fears and increased expectations of potential interest rate cuts by central banks.
- Upcoming Australian employment data may offer critical insights into labor market stability and its impact on inflationary pressures in the region.
Deep dives
Market Reactions to Inflation Data
Recent trends indicate that US and UK inflation rates are easing, leading to reduced market fears and a notable impact on bond yields. The US Core CPI showed a modest increase of 0.2%, which was better than expectations, suggesting that inflation pressures may be stabilizing. This has reduced speculation regarding potential rate hikes by the Federal Reserve and has led to market pricing reflecting an increasing likelihood of rate cuts in the near future. The bond market responded positively, with 10-year Treasury yields experiencing a significant drop, marking a strong bull flattening and signaling investor confidence in economic stability.
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