Cooler than expected US CPI hits USD, boosts gold

Headlines

* US CPI report fuelled bets for an Autumn Fed rate cut

* S&P 500 and Nasdaq sold off as investors rotated out of 2024 tech winners

* JPY jumps 2% after US inflation, spurring talks of intervention

* Britain back on track as growth picks up steam in May

FX: USD sank on the much softer than expected US CPI data. The greenback dropped below the 200-day SMA at 104.47 and then a major Fib level at 104.26 before paring losses. A September Fed rate cut is fully discounted now, though we still have two more CPI and PCE reports before that meeting.

EUR spiked higher to 1.0900 on the weak CPI report before pulling back.  That level was the highest since 7 June. French election chaos has been relatively calmer with the OAT-Bund 10-year spread stabilising. But markets could grow more impatient with gridlock.

GBP touched an almost one-year high at 1.2949. The bullish move was also due to better-than-expected GDP data and BoE policymakers casting doubts on an August rate cut.

USD/JPY plunged to 157.41 and the 50-day SMA which acted as support in early May and June. There was much speculation and local TV stations reporting that Japanese authorities intervened. The major had hit multi-decade highs at 161.80 on Wednesday.

AUD popped up to 0.6799, a fresh year-to-date high, before settling around 0.6750. The hawkish RBA, accelerating monthly CPI data and a possible rate hike contrasts with the Fed. USD/CAD bounced off the 200-day SMA at 1.3595 and a long-term Fib level of the December to April move at 1.3594.

US Stocks: US markets tumbled with tech tanking. The benchmark S&P 500 settled 0.88% lower at 5,585. The tech heavy Nasdaq 100 finished 2.24% down at 20,211. The Dow Jones closed flat at 39,754. Real estate, utilities, materials, industrials and energy all gained between 1% and 2.6%. Tesla dropped 8.44% after its double-digit streak of daily gains. The EV maker is pushing back its robotaxi event to October from August to give project teams more time. Delta Air Lines was the second worst performer after downbeat earnings guidance. 

Asian stock futures are off. Asian stocks were positive after more upside on Wall Street with the main drivers being TSMC’s record quarterly sales and Apple boosting iPhone shipments.  The ASX 200 saw all sectors green led by tech and real estate. The Nikkei 225 pushed above 42,000 for the first time as its record-breaking streak continued. The Hang Seng and Shanghai Composite moved higher on positive risk sentiment even though NATO issued heavy rhetoric.

Gold broke higher as it looks to get close to record highs around $2450. Treasury yields and the dollar collapsed after the CPI data, though buyers stepped in late on.

Day Ahead – US PPI plus review of CPI

We get more price data out of the US after yesterday’s CPI data. Those figures all-round were cooler with the headline monthly number falling for the first time since 2020. The core came in at 0.065% versus the consensus 0.2% estimate. Auto insurance rebound but OER (owners’ equivalent rent) printed at the lowest for three years with shelter, car prices and airline fares all lower than predicted. The 10-year Treasury fell below 4.2% for the first time since late March.

PPI price data is important due to its shared components with the PCE number. That is the Fed’s favoured inflation gauge and has been pointing to easing price pressures. September rate cut odds increased to 85% from 75% with a coin toss chance of a third rate cut this year, instead of just the one seen in the June median Fed dot plot. 

Chart of the day – Dow nearing record highs

The Dow Jones has been missing out on the spree of record levels seen in the benchmark S&P 500 and tech-laden Nasdaq.  But the price-weighted DJIA index, as opposed to the market cap weighted broader S&P 500, broke to the upside on Wednesday after a period of sideways trading over the past few weeks. It then held its gains yesterday as investors rotated out of this year’s megacap tech stocks. This followed a sharp sell-off in late May which saw the Dow decline to 38,000.

Second quarter bank results from JPM Morgan, Wells Fargo and Citibank kick off the upcoming earnings season. Current consensus is for almost +9% y/y EPS growth, the biggest quarterly increase since early 2022, although Goldman Sachs expects the magnitude of EPS beats are likely to diminish.

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