Yields Sink as CPI Puts September Fed-Cut in Play: Markets Wrap

(Bloomberg) — The world’s biggest bond market rallied as further signs of disinflation reinforced bets the Federal Reserve will be able to cut rates soon.

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Treasury yields tumbled across the curve, with Fed swaps projecting more easing in 2024 — and almost fully pricing a September rate reduction. Equities had a bit of hard time picking up traction in early trading after the S&P 500’s longest rally this year spurred concern about an overbought market. Some disappointing corporate outlooks also weighed on stocks.

The so-called core consumer price index — which excludes food and energy costs — climbed 0.1% from May, the smallest advance since August 2021. The year-over-year measure rose 3.3%, also the slowest pace in more than three years.

Treasury 10-year yields dropped 10 basis points to 4.18%. S&P 500 contracts fluctuated. The dollar dropped almost 1% — and was down against all of its major peers. The yen extended its advance to more than 2%.

Wall Street’s Reaction to CPI:

A lot can happen between now and September, but unless most of the numbers pivot back into ‘hot’ territory, the Fed’s reasoning for not cutting rates may no longer be justified.

CPI qualifies as “more good data.”

With Fed officials also apparently getting a little more nervous about labour market weakness, it does strengthen the case for a September rate cut.

One word: pivotal.

With three inflation prints between this morning and September’s Fed meeting, today’s print was crucial in helping the Fed gain confidence inflation is still moving in the right direction.

Cool CPI puts a September rate cut clearly in play.

For the market, clearly the preferred basis for easing rates is predicated on inflationary pressures cooling at a steady pace rather than on an economy losing momentum.

Corporate Highlights:

Delta Air Lines Inc. forecast a quarterly profit short of Wall Street’s expectations as heavy competition in the domestic market drives ticket prices down, dragging the carrier’s shares and pressuring rivals across the industry.
Pfizer Inc. is moving forward with a weight-loss pill as the drugmaker seeks to crack the multibillion-dollar market for obesity medications and mount a comeback from its post-pandemic malaise.
Apple Inc. has avoided the threat of fines from European Union regulators by agreeing to open up its mobile wallet technology to other providers free of charge for a decade.
Costco Wholesale Corp. is boosting its membership fees for the first time since 2017, raising the charge for a basic membership to $65 a year from $60.
Royal Bank of Canada is shuffling its leadership ranks and breaking its largest division into two, in one of the biggest reorganizations of Dave McKay’s decade-long tenure as chief executive officer.
Tata Consultancy Services Ltd. reported profit that topped analysts’ estimates, signaling corporations are resuming spending on projects to take advantage of technologies such as artificial intelligence.