Inflation in the US continued to ease in June as the headline CPI index fell to 3.0% y/y, down from 3.3% a month earlier and lower than markets had been expecting. On a monthly basis, the CPI index declined by 0.1%, down from flat a month earlier. Core inflation was also slower than expected at 3.3%, down marginally from 3.4% recorded for May. Super-core inflation, which strips out energy, housing and food, eased to 4.7% in June from 4.8% a month earlier. The June print is a strong indicator to clear the way for the Federal Reserve to begin its easing cycle later this year. Austan Goolsbee, president of the Chicago Fed, described the June CPI print as “excellent” while Mary Daly of San Francisco said that “some policy adjustment is warranted” while Alberto Musalem from the St Louis Fed said the data was “encouraging.” Markets are now pricing in slightly more than two 25bps rate cuts this year with September at near 100% certainty.
Initial jobless claims in the US declined in the week of July 5 th, falling by 17k to 222k. Headline labour market numbers suggest cooling activity in the US though none of the indicators are suggesting an outright collapse in hiring conditions. Continuing claims for the week of June 28 held roughly steady at 1.85m.
The economy in the UK expanded by 0.4% m/m in May, faster than market expectations and an acceleration from flat activity reported a month earlier. Services industries were the main driver of growth in May, contributing 0.2ppt of the whole as wholesale and retail activity returned to growth. On a rolling quarterly basis, the UK economy expanded by 0.9% in the three months ending May, its fastest pace since the start of 2022 and maintaining a clear upward trend since the start of the year.
Today’s Economic Data and Events
- 11:00 TU current account balance May: forecast USD -1.5bn
- 16:00 IN industrial production y/y May: forecast 4.9%
- 16:00 IN CPI y/y June: forecast 4.8%
- 16:30 US PPI m/m June: forecast 0.1%
- 18:00 US University of Michigan Sentiment July: forecast 68.5
- 18:00 US University of Michigan 1yr inflation expectations: forecast 2.9%
Fixed Income
- US Treasuries jumped on the release of the June CPI as rate cutting bets grew stronger. Yields on the 2yr UST fell almost 11bps to 4.513%, its lowest level since March this year, while the 10yr yield fell 7bps to 4.2101%. Inflation data is clearing the path for the Fed to start easing later this year, setting up a bullish case for US Treasuries.
- Bond markets elsewhere responded positively with gilt and bund yields lower overnight. High-yield and emerging market bond also closed higher on the day.
FX
- The US dollar slumped against most peer currencies following the release of the June inflation data. EURUSD managed a gain of 0.35% to close the day at 1.0868 while GBPUSD rose by 0.51% to 1.2916. USDJPY also moved in favour of the yen, falling by 1.76% to close at 158.84.
- Commodity currency action was more muted with AUDUSD recording a gain of 0.18% to 0.6759 while NZDUSD added 0.2% to 0.6095. USDCAD settled higher at the expense of the Loonie, closing at 1.3632.
Equities
- US equity markets closed mixed with a downward bias overnight. The S&P 500 fell by 0.9% while the NASDAQ was off by nearly 2%. That compared with the Dow Jones where the overall index was slightly higher at the close. European markets were more positive with a gain of 0.4% on the Euro Stoxx index while the FTSE added 0.4%.
- Asian markets are trading mixed today with a 2% drop in the Nikkei offset by a similar gain in the Hang Seng.
Commodities
- Oil prices rose for a second day running overnight with Brent futures up 0.4% at USD 85.40/b and WTI adding 0.6% to USD 82.62/b. The near-term slump in the US dollar should provide some help for commodities, including oil, if only briefly.
- The IEA lowered its oil demand estimate for 2024 by 140k b/d thanks to a downward revision to Asian demand as it estimates that China’s consumption decline in Q2. The IEA expects overall demand growth of 0.97m b/d in 2024 and a similar level in 2025 as the decline in OECD consumption is set to accelerate.
