TMGM Group reported that the CPI data released on Wednesday showed that the unadjusted CPI annual rate in the US for July was 2.9%, marking the fourth consecutive month of decline and the first time since March 2021 to return to the "2" range. This was lower than the market expectation of 3%, with a monthly rate of 0.2%, meeting market expectations. After the data was released, spot gold quickly surged by nearly $10 in the short term before retreating, with a short-term fluctuation of nearly $15. The US dollar index fluctuated by more than 20 points in the short term, and non-US currencies fell across the board.
Although the data released by the US Bureau of Labor Statistics shows only one decimal place, Fed officials and economists prefer to look further to better understand the inflation trajectory. The largest category in the service sector, housing prices, rose by 0.4%, compared to 0.2% in June. Owners' equivalent rent—a subset of housing and the largest individual component in the CPI—also rose by 0.4%. Primary residential rent increased by 0.5%, the largest gain since February, which may raise some questions after fluctuations earlier this year.
Bank of Montreal Capital Markets believes that although the stickiness of housing costs is a notable aspect of this report, overall, it is a very in-line data set, maintaining the baseline assumption of a 25 basis point rate cut by the Fed in September. Following the release of this data, rate traders reduced their bets on a 50 basis point rate cut by the Fed at the September meeting, now expecting a cut of about 33 basis points, compared to yesterday's expectation of 37 basis points.
Market pricing for a rate cut by the Fed within the year dropped from 106 basis points to 103 basis points after the data release. This reflects a slightly hawkish reaction, indicating that the market had initially priced in more downside surprises. However, the head of multi-sector fixed income at Goldman Sachs Asset Management, who still believes a 50 basis point cut is possible in September, pointed out that the CPI data paves the way for a 25 basis point cut in September. But considering more data is yet to come, the possibility of a 50 basis point cut cannot be ruled out. With the economy slowing down, inflation continuing to trend downward overall, and a weak job market, it is widely expected that the Fed will start to cut rates next month, with the extent of the cut likely depending on more upcoming data.
Market Analysis:
The US dollar index continues to decline on the daily chart, with the MACD dual lines and volume bars expanding below the zero axis. Before the September meeting, officials will receive more inflation data and another non-farm payroll report. Following the disappointing July non-farm data, which triggered global market sell-offs and heightened recession fears, this report will be closely scrutinized.
About TMGM
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