CPI Beats But It Might Be Small Comfort To Beleaguered Dollar

Well if you needed a fun setup for this morning’s CPI data in the U.S., you got one this week with the dollar in a tailspin and Treasurys trying to sort out what’s real and what’s “fake news” (to quote SAFE) with regard to China’s alleged plans to “halt” purchases of U.S. debt.

The dollar is now languishing at its lowest levels since September, while the euro is on an absolute tear, surging Friday to three-year highs on optimism about a breakthrough for Angela Merkel in the coalition building effort.

So with the dollar on the back foot and Treasurys unsure what to do (is it a bear market or isn’t it?), we’ll get the closely-watched CPI print which comes a week after the disappointing payrolls report was in part rescued by an in line AHE number and a day after a sub-par PPI print and the “hawkish” ECB minutes sent the dollar tumbling further.

“We look for slightly below-consensus readings for key data releases on Friday. Headline CPI for December is expected to be slightly weaker (0.1% m/m versus 0.2%) but in line with consensus on core (0.2% m/m),” Barclays last weekend. The bank is also below consensus on December retail sales ex-autos (0.2% m/m versus 0.4% consensus). “The softer patch for US data is consistent with the weaker payroll number last week and contrasts with the stronger and above-consensus readings over October and November,” they add.

“We estimate a 0.22% increase in December core CPI (mom sa), which would leave the year-over-year rate unchanged at +1.7%,” Goldman said, weighing in with their week ahead outlook. “Our forecast reflects additional post-hurricane strength in used car prices, a rebound in lodging away from home, and a possible rebound in airfares.” Goldman is at 0.4% on core retail sales (so, in line with consensus) “reflecting indications of a solid end to the holiday shopping season.”

Without further ado, here are the numbers:

• CPI rose 0.1% vs est. 0.1%
• Forecast range from 0.0% to up 0.4% from 69 estimates
• Ex. food, energy up 0.3% vs est. 0.2%
• CPI Y/y rose 2.1% vs est. 2.1%
• Core CPI y/y 1.8% vs est. 1.7%
• U.S. Dec. Retail Sales Rose 0.4% vs Est. 0.5%
• Retail sales less autos rose 0.4% in Dec., est. 0.3%

Will that be enough to give the dollar a reprieve? We’ll see, but it seems like that might be too little, too late. At least for this week.

Notable reactions:

• FED FUND FUTURES INDICATE ODDS OF MARCH HIKE RISE TO 83%
• TREASURY 2-YEAR YIELD HITS 2% FOR FIRST TIME SINCE SEPT. 2008