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There’s no bigger report in markets over the last few months but perhaps the importance of this event has waned a little, especially since major central banks have now opted to pause. And if inflation continues to follow a downtrend, it’s a case of everything sticking to the script – at least for the time being.

US headline annual inflation is expected to dip a little to 3.6% in September, down from 3.7% in August, while core annual inflation is estimated to drop slightly to 4.1% from 4.3% previously.

The thing to watch out for today and in the months ahead is if inflation might stall on its way towards the 2% target and prove to be much stickier than anticipated. That challenge and conundrum might not impose itself on markets just yet but if and when we do get there, now that will start to change the dynamics of looking at the data again.

For now, there might not be much else to really extrapolate from the figures as it should still point towards a further moderation in price pressures. The main reaction to watch though will be from the bond market and there are some contradictions at play if yesterday is anything to go by.

We saw Treasury yields dip back after a strong PPI report but then a softer auction helped to underpin yields towards the latter half of US trading.

That will keep traders on their toes today and the real fear for broader markets is that the selling in bonds might not be over just yet. Despite a 30 bps drop from the highs earlier in the month, that only serves to erase the October climb in 10-year yields. For some context, 10-year yields are still up over 75 bps since July so to say that the trend is broken is still a bit premature.


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