Market Takes a Breath: Big Risks Are Behind Us
After wrangling with two headline‑sticking events, the markets can finally exhale. Traders are already nudging away from fear‑monger volatility, slimming down hedges, and chasing that high‑beta, high‑momentum groove—particularly the high‑quality tech names that keep making headlines.
Happy Days for the U.S. CPI Print
The latest Consumer Price Index (CPI) value is a rainbow after a storm: overall CPI < 3.5% and core services at a modest 0.22% run‑rate. Even more exciting, the “super core” (core services without housing) dipped for the first time in two years, sitting at a negative 0.04% point. Rents held firm at 0.39%, but analysts expect these to ease, nudging core services toward target sweet spots.
What’s the Bottom Line on Numbers?
- Three‑month annualised CPI fell from 4.1% to 3.3%.
- Six‑month annualised CPI eased from 4.1% to 3.8%.
- May to June CPI gives a hint that the output of summer might be softer.
We’re all watching the next milestones: the June CPI (due 11 July), the July Non‑Farm Payrolls (5 July), and the core PCE print (28 June). Fed Chair Powell hinted that a 2.6% core PCE would be a sweet spot, aligning nicely with the Fed’s goal of 2.8% in Q4‑24.
Why the Euphoria? The Fed’s Tightrope Walk
Right after the CPI, markets briefly burst onto a high note: U.S. swaps priced a 50 bp cut by December, the S&P 500 futures jumped 1.2%, gold skated up to $2,341, and the dollar took a bit of a nosedive. Still, Powell kept the calm: he nudged the “dot” (Fed’s rate commentary) toward a single cut for 2024, while still leaving room for an extra cut in 2025.
Despite the brighter mood, Powell remains cautious—he’s not rushing to cut rates. The lack of an updated unemployment forecast (still at 4%) provides a low bar for a rate cut. If the upcoming job reports backfire (e.g., a worsening BLS Household Survey), the market may stake a 25 bp cut for September—and that would live up to its implied probability of about 62%.
U.S. Equity and Fixed Income – The Day’s Summary
- S&P 500 up 0.9%
- Nasdaq 100 up 1.3%
- Russell 2000 up 1.6% – better than the big tech leaders
Tech dominated: Apple +2.9%, Nvidia +3.6%, Microsoft +1.9%. These giants weigh roughly 20% of the S&P 500’s market cap, so even a decent average breadth keeps the overall index leaping.
Fixed income stayed on the flatter side: 2‑year Treasury yields nudged 8 bp lower to 4.75%, reflecting a shift in rate expectations. The dollar was a roller‑coaster—USDJPY slipped from 157.28 to 155.72 on CPI and now hovers at 156.70. High‑beta FX like AUDUSD tested 0.67 again, while ZAR and NOK saw healthy buying. Gold’s wild jump to $2,341 faded back to around $2,323.
What’s Next? Key Events to Watch
- Australia’s jobs data at 11:30 AEST could trigger a quick stir in the AUD.
- U.S. jobless claims and a forthcoming PPI release will help fine‑tune core PCE projections.
All eyes are on these releases: they can be the match that either keeps the market smiling or pulls it back into a more cautious groove.
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