Futures have held those moves overnight as Asia stocks were dragged into the slipstream too – helped by the relief of the dollar’s biggest one-day drop of 2024 on Wednesday.
Central to the new-found ebullience on Wall Street has been the puncturing of stock and bond market volatility to the lowest in four months and six weeks respectively.
The ebbing of monthly CPI gains last month is cause for considerable relief after three months of sticky price gains – with measures of easier services and shelter inflation of particular note for the wary Fed. Annual core and headline CPI inflation slipped to 3.6% and 3.4% in that order.
Although a noted policy dove, Chicago Fed boss Austan Goolsbee welcomed the retreat in housing inflation in particular. “I’m optimistic that we’re continuing on this downward trajectory,” he said late on Wednesday.
Two quarter-point Fed rate cuts are back in the futures strip for this year, with a first move almost fully priced by September and even a one-in-three chance now that the Fed may cut as soon as July.
A surprise stalling of retail sales growth last month, sub-forecast housing indicators for May and a bigger drop in New York manufacturing sentiment this month also tempered the growth picture – and the combination has dragged the Atlanta Fed’s real-time GDP growth estimate back below 4%.
The U.S. economic surprise index is still tracking at its most negative since January 2023.
Alongside today’s industry readout, markets will now watch closely on Thursday to see if last week’s outsize jump in weekly jobless claims holds true.
Egging on global markets at large is the fact that U.S. inflation relief — and the sharp dollar recoil – solidify expectations that the European Central Bank will cut rates next month and money markets also put a greater than 50% chance the Bank of England will ease in June too.
Underscoring the much tamer inflation picture in the euro zone – where annual CPI inflation is running at just 2.4% – Italy reported on Thursday that its annual inflation rate fell below 1% last month.
As to overall global growth, Japan surprised with news of a deeper contraction in economic activity in the first quarter than forecast. The economy there shrank 2.0% annualised in January-March from the prior quarter, faster than the expected 1.5% drop as the weakening yen hit consumption.
But the weak growth readout may cut across speculation of another imminent Bank of Japan tightening there.
