Is the Fed’s job done? The June US inflation figure came in really soft. Stock investors rotated out of big tech and into small caps – the Nasdaq tumbled 2% and the Russell 2000 jumped by almost 4%. It was a day of divergence.
Following the release of the US inflation figure, Nvidia shares fell over 5%, weighing heavily on the tech-heavy Nasdaq, with 2-3% declines for other tech giants. Tesla slumped by more than 8%. European stock markets are higher on Friday morning, with the FTSE 100 climbing 0.35% to 8,251 as of the time of writing.
Gold rallied through $2,400 as the dollar softened and real yields declined.
The lowest CPI inflation report in three years sent Treasury yields plunging and the dollar dipped aggressively lower to send major peers to their highest levels in months.
The June CPI print fell to 3.3% and prices declined by 0.1% month-on-month. Shelter costs finally normalised. The odds of an interest rate cut by the Fed in September jumped from 70% to almost 90%. Is this the last mile?
I’ve said for ages the Fed won’t push to get from 3% to 2%. The job has been done and they will accept slightly higher levels of inflation now.
The question is why wait until September – the case for a cut has been building for some time, and the Fed seems overly cautious. Too loose for too long on the way in, too tight for too long on the way out.
US producer price inflation data is due later, whilst banks kick off Q2 earnings on Wall Street. Chinese exports surged to create the biggest trade surplus since 1990.
Bank of America is out with an upgrade on Apple, saying it expects a strong multi-year iPhone refresh cycle with an ageing installed base. It raised its target price on Apple stock to $256.
Elsewhere, Joe Biden made a few gaffes in his “big boy” press conference…calling Zelensky ‘President Putin’ and Kamala Harris “vice president Trump.” More on whether Biden runs in the latest Overleveraged podcast.
Sterling, already firmer on tough talk out of the Bank of England and some positive UK GDP figures, rallied to its highest in a year versus the dollar.
As for USDJPY – there was a massive move in the Japanese yen on the US inflation report – looks like the Bank of Japan used the data to buy some yen.
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