With today’s CPI expected to show modest 0.2% monthly gains at headline and ‘core’ levels, and multiple measures of inflation expectations dissipating again, futures seem comfortable in pricing as much as 107 basis points of Fed easing over the remainder of the year.
Even though typically hawkish Atlanta Fed boss Raphael Bostic said on Tuesday he wants to see “a little more data” before supporting a cut, he will likely get that before September’s meeting.
Two-year Treasury yields have plunged back below 4% and 10-year yields have retreated as low as 3.84%. The dollar fell back, with the euro hitting its best levels of the year against the greenback as second-quarter GDP growth in the bloc came in at an expected 0.3%.
With inflation on the wane and Fed cuts coming, the wider economy tracking almost 3% real growth and annual corporate profit growth running at close to 14%, it’s a rosy picture for stocks and both the S&P 500 and the Nasdaq added more than 1%.
Adding to the global easing party on Wednesday, the usually hawkish Reserve Bank of New Zealand surprised with its first rate cut in more than four years and said inflation was heading back to its target. The kiwi dollar was jolted backward.
The decision by the one of the earliest adopters of inflation-targeting will resonate beyond NZ markets.
And there was inflation cheer in Britain, too.
Even though headline annual CPI inflation there popped higher for the first time this year after two months bang on the 2% target, the rise to 2.2% was smaller than forecast and aggravating service sector inflation continued to ease.
Sterling nudged lower after Tuesday’s sharp rally.
