July 12, 2023
Good morning,
This month has had a simple narrative for investors; two releases of key inflation data ahead of an end-of-the-month Fed meeting where a rate hike has been a foregone conclusion. The first data point was the June employment numbers last week. The second is this morning’s June CPI numbers (Consumer Pricing Index). There is nothing for the next two weeks into the 7/26 Fed meeting.
Expectations for this morning’s number have been running high among economists – a setup for a bullish surprise. And this morning’s number was just that. The headline number for June CPI increased 0.2% M/M (month over month) vs 0.3% expected. The more important Core CPI number (ex-food & energy) was +0.2% M/M vs 0.3% expected. Reams of data are contained in these releases – inflation is sliced and diced in every imaginable way. In sum, today’s CPI came in soft vs. expectations which is bullish for bond and stock markets. Futures jumped up half a percentage point in the news and sit at +.70% pre-market. Yields on the 2yr Treasury are down 10 bps (basis points).
The likelihood that today’s data changes investor expectations for another rate hike in two weeks is negligible according to immediate no-reaction in the interest rate futures market. However, the probability of a second rate hike in September (no meeting in August) has been cut in half this morning.
That’s it from a macro-economic perspective for the rest of the month. Earnings season starts Friday, see you then.
Be well,
Mike