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Trump’s Trade Truce Calms Nerves — CPI Could Flip the Script in Minutes

6 days ago

Markets are breathing easier after President Donald Trump signaled a partial easing on chip sales to China and extended the tariff truce until November 10. The move removes an immediate threat to global trade stability and has helped lift sentiment in risk assets ahead of the US inflation release later today.

The pause in tariff escalation and relief in tech sanctions has cooled fears of near term supply chain disruption. But the calm is fragile, July CPI could rapidly redraw market positioning. Consensus expects core CPI at +0.3% m/m, a modest acceleration as import costs seep into consumer prices.

Money markets still price a 90% chance of a Fed cut in September and more than two cuts by year-end. A hot inflation print could slash those odds and trigger a sharp USD rebound, a jump in Treasury yields, and pressure on gold and equities. A softer CPI would reinforce dovish bets, weaken the dollar, and fuel demand for risk assets.

Scenario Watch : CPI Outcomes & Market Impact:

  • Hot CPI (≥0.4% m/m core):
    • USD: Strong rebound, led by USD/JPY and USD/CHF
    • Bonds: Yields spike, front-end hit hardest
    • Gold: Heavy selling pressure, break below near term supports likely
    • Equities: Risk-off, tech underperforms
  • In-line CPI (~0.3% m/m core):
    • USD: Modest gains or range-bound trading
    • Bonds: Mild yield drift higher
    • Gold: Sideways trade, sensitive to Fed commentary
    • Equities: Mixed, focus shifts to Fed speakers
  • Soft CPI (≤0.2% m/m core):
    • USD: Broad decline, highest pressure vs. high-beta FX (AUD, NZD, GBP)
    • Bonds: Yields drop sharply, curve steepens
    • Gold: Strong rally, safe-haven bid returns
    • Equities: Risk-on surge, led by rate-sensitive sectors

Political headlines may also stir markets. The administration is weighing Fed vice chairs Michelle Bowman and Philip Jefferson, plus Dallas Fed’s Lorie Logan, as potential successors for the chair role next year. Trump also appointed EJ Antoni of the Heritage Foundation to head the Bureau of Labor Statistics after abruptly dismissing the previous chief.

The trade truce offers breathing space, but CPI is the real risk event. Be ready for fast, correlated moves across USD, Treasuries, gold, and equities within minutes of the release.

Disclaimer: This report is for informational purposes only. It does not constitute investment advice or represent the official views of any central bank or regulatory body.

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