Markets:

• Gold up $3 to $2319
• US 10-year yields down 7 bps to 4.33%
• WTI crude up 46-cents to $82.39
• S&P 500 up 0.8% to record high
• AUD leads, USD lags

Today’s session offered a pair of surprises. The big one came early in the day as CPI undershot all expectations, leading to a sharp drop in the dollar. Core CPI was +0.16% unrounded compared to +0.3% expected and many of the details (aside from shelter) were soft. That led to broad US dollar selling, including a 150 pip drop in USD/JPY and big gains in AUD and NZD. Stocks loved the news and jumped to record highs as Apple gained more than 12% in the past two days.

Built into those moves were the expectation that Powell would be dovish as he has been so many times this year. Instead, the FOMC dot plot showed just one cut this year compared to the two that were fully priced into the market after CPI. Powell said those numbers were highly dependent on the data but the market wanted more of a signal that a September cut was likely.

In reaction, the US dollar took back a big portion of its losses with USD/JPY rising to 156.85, about 110 pips from the lows. Other retracements weren’t quite as large but all exceeded 50%, and equities gave back a decent portion of gains.

The result leaves the market again in a position to be moving with every data point and PPI is due up tomorrow.