The July CPI numbers might not show much improvement from the previous month, but as long as there isn’t a big surprise, investors might still hope for the Fed to start easing in September.
Futures markets currently show a 54% chance of a 50 basis point cut by the Fed, with a 46% chance of a 25 basis point cut, and traders are pricing in a full percentage point of easing by year-end.
Keeping these expectations intact might be key to not scaring away investors’ risk appetite just as Japanese shares have rebounded after last week’s violent selloff. Japan’s Nikkei <.N225> rose more than 3% following a holiday on Monday.
Ahead of the CPI report, the mood on Wall Street was upbeat, with the S&P 500 and Nasdaq Composite both continuing to rebound from recent dips. U.S. Treasury yields slipped as data revealed that U.S. producer prices rose less than expected in July, which supports the case for the Fed to cut rates in the coming months.
Meanwhile, Brent and U.S. crude oil futures dipped on Tuesday as the market perceived a reduced risk of a broader conflict in the Middle East.
