If ever inflation was under pressure it certainly is now given PPI and Unemployment claims missing targets, yesterday. Inflation will need to come in strong for there to be any hope of a live December FOMC meeting. Dollars bulls perhaps shouldn’t be optimistic if inflation data which is to be release later today its forecast of 0.2%, investors need to ask themselves, does this justify a rate hike?
The probability of a December rate hike dropped following the poor performance of Unemployment claims and arguably more important, the producer price index. Does inflation stand a chance considering the diverging relationship between unemployment and inflation? we allude to the strong unemployment news released on late last week. Mixed data make the inflation release even more interesting.
The rush to safe assets continues as Gold reached a two-month high, perhaps this trend will continue given Trumps comments outlining that he may not have being tough enough, it’s hard to see a compromise given the rhetoric of both parties. Gold which is directly related to the dollar could go higher not only due to geopolitical tensions, with the prospects of a December rate hike slipping off the table the precious metal could go higher. If rates were to go higher then Gold typical goes south due to the opportunity cost of holding a non-yielding asset. To reaffirm, inflation must come in strong to keep the debate going.