Headline yearly CPI for July was 2.9%, below the 3.0% estimate and yearly Core CPI (excludes food and energy) was 3.2%, matching the estimate. Monthly Headline and Core CPI were both +0.2%, matching estimates.
The modest decline keeps the Fed on track to cut the overnight rate at the FOMC’s September 19th rate policy meeting (potentially the first rate cut since March 2020). Fed Funds futures now imply greater than 100% probabilities of a 25-basis point cut at each of the FOMC’s next five meetings through March of next year. The implied rate by year-end 2024 is 4.294%, or more than 1% below the current 5.33% effective rate, suggesting that traders are overextended on cuts in the near term. The Fed is unlikely to cut more than 25 basis points per meeting, in line with Fed Chairman Powell’s patient approach to rate policy.
U.S. Treasury yields are little changed from yesterday’s close. The 2-year yield is 3.95%, edging out the 10-year yield at 3.83%, keeping the yield inversion in place.
New Zealand’s RBNZ delivered a surprise 25-basis-point cut overnight. The probability of a cut was a less than certain 67.5% ahead of the announcement. The New Zealand dollar is -0.97% vs. the USD today following the cut.
The U.S. Dollar Index is -0.19% today at 102.364, quickly approaching the August 8th meltdown low at 102.16. Primary dollar losses are -0.84% vs. MXN, -0.53% vs. NOK and -0.39% vs. EUR. The dollar’s biggest gain is vs. the NZD as mentioned already, followed by a 0.33% gain vs. AUD.
U.S. equity indexes are mixed in early trading, a 0.32% decline in the Nasdaq 100 setting the market’s tone. Market volatility is lower for the 5th consecutive day with the VIX back into a normal range at 17.37.
