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Not so fast! While the upbeat U.S. headline CPI revived December Fed rate hike hopes, the scrilla was unable to hold on to its lead as fresh jitters on North Korea came up.

The higher-yielding Kiwi took the brunt of the hits while the pound proved unstoppable in its post-BOE climb.

  • U.S. headline CPI up from 0.1% to 0.4% vs. 0.3% forecast in August
  • U.S. core CPI posted 0.2% uptick as expected, 0.1% previous
  • U.S. initial jobless claims at 284K vs. 303K consensus, 298K previous
  • Fed Dec hike expectations up from 38.9% to 46.7% after CPI release
  • Canadian new house price index up by 0.4% vs. 0.3% forecast, 0.2% previous

Major Events/Reports

Upbeat U.S. CPI lifted Fed hike hopes

Fed interest rate hike expectations for December ticked higher after seeing the latest CPI report as the headline reading beat expectations with a 0.4% gain versus the projected 0.3% increase.

Underlying data revealed that the gains were mostly due to a pickup in prices for gasoline and shelter, bringing headline inflation up from 1.7% to 1.9% over the past twelve months. In fact, the index for energy prices rose 2.8% for the month, its largest monthly increase so far this year.

Meanwhile, the core reading came in line with expectations for a 0.2% uptick, which was still an improvement over the earlier 0.1% increase. Components such as motor vehicle insurance, medical care, and recreation posted gains while prices of used cars and trucks, as well as airfare, took hits.

On another positive note, the initial jobless claims report also printed better than expected results. The number of people claiming unemployment-related benefits fell from 298K in the previous reporting week to 284K last week, much lower than the estimated 303K figure.

More tax reform talk

U.S. government officials look eager to keep the ball rolling on tax reform, with Treasury Secretary Mnuchin setting the date for unveiling the highly-anticipated plan on the week of September 25.

For now, he gave a good teaser to the markets by saying that he also supports eliminating the real estate tax and that specific corporate tax rates will be announced. Although they’re not quite braiding each other’s hair during sleepovers just yet, Mnuchin noted that the administration and lawmakers in Senate and the House are not far apart in their tax reform views.

The Dow 30 index still managed to catch some gains off this narrative and reach new record highs, but the other two took things in stride:

  • Dow 30 index is up 45.30 points to 22,203.48 (+0.20%)
  • S&P 500 index is down 2.75 points to 2,495.62 (-0.11%)
  • Nasdaq is down 31.10 points to 6,429.08 (-0.48%)

Another round of jitters from North Korea

North Korea’s absence from the headlines may simply be the calm before the storm as Pyongyang recently made another threat to “sink” Japan and bring the U.S. to “ashes and dust.”

This comes after the UN Security Council recently imposed a new set of sanctions on the hermit nation for conducting missile tests and threatening the safety of the international community. In response, the Korea Asia-Pacific Peace Committee also called for a breakup of this council which it dubbed as a “a tool of evil” by countries being bribed to action by Uncle Sam.

As the state-run KCNA news agency wrote, the committee said in a statement:

“The four islands of the archipelago should be sunken into the sea by the nuclear bomb of Juche. Japan is no longer needed to exist near us.”

North Korea has also rejected the Security Council resolution and hinted that it is gearing up for another missile test, which might involve an ICBM this time.

A bit of safe-haven demand was seen, with gold advancing 0.43% to $1,333.68 per troy ounce but WTI crude oil continues to sustain its rally stemming from the upgraded global demand outlook.

Major Market Mover(s):

 

NZD

Risk aversion peeked back in the markets and with the New Zealand dollar having the highest yield among the bunch, it understandably suffered most of the unwinding action.

NZD/JPY is down from 80.01 to 79.68 (-0.40%), NZD/CHF slipped to a low of .6943 (-0.37%), NZD/USD fell from .7241 to .7225 (-0.21%), and EUR/NZD is up to 1.6486 (+0.48%)

GBP

The pound continued to outshine its peers as BOE rate hike expectations picked up after the latest central bank announcement.

GBP/USD is testing the 1.3400 handle (+1.48%), GBP/NZD is up to 1.8551 (+1.72%), GBP/JPY climbed from 145.95 to 147.70 (+1.21%), and GBP/CHF is up to the 1.2900 mark (+1.35%)

Watch Out For:

  • 11:30 pm GMT: New Zealand Business NZ manufacturing index (55.4 previous)
  • 9:50 am GMT: BOE MPC member Vlieghe’s testimony