US Stocks Ignore Warning Signs as Inflation Remains Above Target

The latest inflation numbers from the US are in line with expectations, but this may not be enough to calm market nerves. The Consumer Price Index (CPI) for July fell to 3.4% from 3.5%, while Core CPI edged down to 2.5% year-on-year.

The US dollar sold off slightly after the release, but stock index futures rose. However, this reaction was short-lived, and both markets settled back down within an hour.

Meanwhile, the CME's FedWatch Tool shows that the probability of the Federal Reserve leaving interest rates unchanged at its next meeting in mid-September has risen to 68% from 50%. The likelihood of a rate hike before year-end has dropped to 68% from 78%, which is still significant.

Despite these developments, all major US inflation measures remain above the Fed's 2% target. Core PCE, in particular, continues to hold above this threshold.

The latest Non-Farm Payroll update was dismal, with payrolls falling 23,000 in July, significantly below expectations of a gain of 85,000 jobs. This follows on from a previous downside miss to forecasts.