TD Securities' analysts note that the U.S. April CPI reading disappointed modestly, with a 0.1% m-o-m uptick in core running below expectations.

• Still, key components like shelter and health care were solid, with the weakness concentrated in some of the "transitory" factors as identified by the Fed. As such, this report likely keeps the Fed on the sidelines and does not increase the chance of low-inflation driven "insurance cuts" later this year.
• Headline CPI rose at a softer-than-expected 0.3% m/m in April (0.319% unrounded), with consensus and us both expecting a 0.4% increase. The gain was again primarily driven by a strong 6% rise in gasoline prices, as expected. Food prices came in a bit softer, posting a -0.1% decline lead by a -0.5% drop in the food at home category. Nonetheless, the annual headline inflation rate still increased by a tenth to 2.0% — a five-month high.
• Core CPI inflation came slightly weaker versus our and the consensus expectations, expanding 0.1% m/m (0.138% unrounded) and 2.1% y/y.
• For the Fed, the disappointment in the April CPI report is not likely to materially change the clear majority view that some significant part of recent soft inflation numbers is transitory.
• Importantly, despite the slight disappointment in this report, we would fade any inference that the Fed may be nudged toward "insurance cuts" due to weak inflation. Rather, we would need to see a run of multiple months with core PCE inflation around 1.5% in order for the FOMC to start that conversation.
• FX: Residual USD weakness post-CPI is likely to prove temporary as trade talks between the US & China remain the focal point. We retain a bearish bias for USDJPY, where a weekly close below 109.71 should open a flush towards 108.50 support.