BOCOM INTL: US December nominal CPI meets expectations, inflation slowing but upside risks remain

BOCOM INTL released a report stating that after strong growth in non-farm data in December, CPI data has become the focus of the market. Following a steep rise in US bond rates, CPI data will undoubtedly amplify the volatility of the already fragile capital markets. December's nominal CPI met expectations, and the slowdown in core CPI, especially in core services inflation data, has noticeably eased market tension. However, the temporary slowdown in inflation may have limited soothing effect on the market, and medium-term upward risks remain pessimistic. BOCOM INTL stated that in December 2024, US CPI increased by 2.9% year-on-year, as expected, up from 2.7% the previous month; the month-on-month increase was 0.4%, exceeding expectations of 0.3%, up from 0.3% the previous month. December's core CPI increased by 3.2% year-on-year, as expected, and the previous value was also 3.3%; the month-on-month increase was 0.2%, in line with expectations and down from 0.3% the previous month. After the unexpected drop in inflation data in December, market expectations for skipping a rate cut in January have changed very little. However, compared to the strong non-farm data released last week, the market has advanced its bet on the timing of rate cuts in 2025 - from September to June. The bet on rate cuts for the whole year remains at 1-2 times. The Fed will hold its January FOMC meeting next week, and skipping a rate cut in January is the most likely scenario given the strong non-farm data and the slowdown in inflation data. There is substantial disagreement among Fed officials regarding rate cuts. Although most officials have recently stated they will slow down rate cuts and wait for observation based on data, the current policy rates still remain restrictive. The Fed is expected to take the opportunity to cut rates.