- US June CPI +3.0% vs +3.1% y/y expected
- Japan intervened in the forex market - report
- US initial jobless claim 222K vs 236K estimate
- Fed's Musalem: CPI data shows 'encouraging further progress'
- SF Fed Pres.Mary Daly: Likely some policy adjustments will be warranted
- Canadian finance minister could walk the plank. Mark Carney could be tapped
- US June Federal budget deficit -66.0B vs -83.0B expected
- U.S. Treasury auctions off $22 billion of 30 year bonds at a high yield of 4.405%
- Tesla plans to delay robotaxi event to October from August
- June Cleveland Fed median CPI +0.2% vs +0.2% prior
- What's priced in for the Federal Reserve after the June CPI surprise
Markets:
- Gold up $43 to $2441
- WTI crude up 91-cents to $83.02
- US 10-year yields down 7.6 bps to 4.20%
- S&P 500 down 0.8%, Nasdaq down 2.1%
- JPY leads, CAD and USD lag
It was a strange day in the market.
The news was straight-forward with CPI unambiguously weak. All the numbers were below-estimate, putting another nail into the coffin of the inflation fight. The initial reaction is what you would expect with the market pricing in 61 bps in Fed easing by year end, up from 49 pre-data. The dollar fell, stock futures rose and Treasury yields sank.
That didn't last. For one, Japan may have unveiled a new intervention strategy to go along with a new top currency official announced in late June. They tried to ride the wave of USD selling post-CPI to hammer USD/JPY. They were successful, knocking it more than 300 pips lower as the dollar fell around 40 pips elsewhere.
The dip was partially bought by confirmation of the intervention and we will have to wait until the end of the month to find out how much they spent. For now, this might keep USD/JPY spec longs sidelined into the next major round of economic data.
Aside from JPY, the dollar move was moderate with EUR/USD rising to 1.09 from 1.0850 only to slowly give back most of the move. Cable made more headway, climbing 80 pips on the CPI headlines to 1.2950 before sagging back to 1.2912.
Some of the giveback moved with bonds as yields ticked up from the lows, particularly after a soft 30-year reopening auction. The bigger driver was risk aversion though as high-flying Nasdaq stocks were cut down including a 5.6% fall in NVDA and am 8.4% drop in TSLA among others. Where it got strange was in the Russell 2000, which gained 3.6% in a huge divergence. Real estate and regional banks absolutely soared.
I wonder how much of that move was hedges and shorts taken off rather than true rotation. It looks to me like a capitulation on inflation trades/hedges but it also comes after an extended run in megacap and AI stocks, including something of a mysterious and strong rally yesterday.
So for all the fresh clarity in the macro picture, it's harder to find in markets. Also don't forget that in the prior two soft CPI reports, the bond market ultimately gave back the big kneejerk moves.
