Markets Digest Crosswinds of Inflation, Energy Prices, and Trade Friction

Global markets are being affected by several crosswinds, including renewed inflationary pressure, elevated energy prices, and trade friction. In the US, the August headline CPI rose 3.4 percent year-over-year (YoY) and 0.4 percent month-over-month (MoM), while core CPI increased 2.4 percent YoY and 0.3 percent MoM.

The data suggests that inflation remains sticky, with elevated energy prices, tariff-related pressures, and a firmer monthly core CPI indicating that progress toward the Federal Reserve's 2 percent target will likely remain gradual despite continued moderation in annual core measures.

Following the releases, markets increased the implied probability of a 25bp September rate increase to around 90 percent, while fully pricing a total of two hikes by year-end. The renewed US-Canada trade tensions introduce additional risks to regional supply chains, growth, and consumer prices.