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Morgan Stanley forecasts headline inflation to come in at 0.37% m/m and 2.7% y/y as we look to the US December CPI report later today. The former is a little hotter than the 0.3% expected estimate with headline annual inflation matching estimates and the November reading at 2.7%.As for core inflation though, the firm forecasts that at 0.36% m/m and 2.8% y/y. That is up from the 0.08% m/m average across the past two months as well as the 2.6% y/y reading in November.On the more bullish estimates, they cite a later survey date in November and higher inflation in bimonthly-sampled cities as being two key reasons. By their calculations, it should add around 11 bps to core inflation for the month of December.Overall, Morgan Stanley expects the report to indicate a clear rebound in price pressures after the recent soft patch and that could potentially rebuff the narrative that disinflation has paused rather than resumed.
This article was written by Justin Low at investinglive.com.
💡 DMK Insight
Morgan Stanley’s inflation forecast is a crucial signal for traders navigating the current market. With headline inflation projected at 0.37% m/m, slightly above the expected 0.3%, this could influence the Fed’s monetary policy decisions. If the December CPI aligns with these figures, it may reinforce the Fed’s stance on interest rates, impacting both forex and crypto markets. Traders should keep an eye on how this data affects the USD, particularly against major pairs like EUR/USD and GBP/USD, as well as risk assets like Bitcoin. A stronger dollar could pressure crypto prices, while a dovish Fed response could lead to a rally in both equities and crypto. On the flip side, if inflation surprises to the downside, it could shift market sentiment, leading to a potential sell-off in the dollar and a spike in risk assets. Watch for the reaction in the market post-CPI release, especially around key levels like 1.05 for EUR/USD and $30,000 for Bitcoin, as these could set the tone for the coming weeks.
📮 Takeaway
Watch the December CPI report closely; a reading above 0.37% could strengthen the dollar and pressure crypto prices, especially Bitcoin around $30,000.
