CPI's downside surprise bodes well for September rate cut
Dow modestly higher, S&P 500 declines, Nasdaq down >1%
Real Est leads S&P 500 sector gainers; Tech weakest group
Euro STOXX 600 index up ~0.7%
Dollar falls; crude, bitcoin advance; gold up ~2%
U.S. 10-Year Treasury yield tumbles to ~4.18%
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CPI'S DOWNSIDE SURPRISE BODES WELL FOR SEPTEMBER RATE CUT
CPI data on Thursday brought with it a refreshing blast of cool air, surprising to the downside up and down the line.
The Labor Department's Consumer Price Index (CPI) USCPI=ECI, which tracks the prices urban consumers pay for a basket of goods and services, showed headline prices decreased by 0.1% from May, defying the 0.1% gain analysts expected.
Year-over-year, price growth cooled by 30 basis points to 3.0% versus the 3.1% consensus. That's less than half the 6.6% seen at the metric's September 2022 apex.
Stripping out food and energy prices, core CPI increased on monthly and annual bases by 0.1% and 3.3%, respectively. Both readings were 10 basis points below economist forecasts.
Speaking with Reuters, Peter Cardillo, chief market economist at Spartan Capital Securities said "This report basically upholds Powell’s thinking that 2% inflation rate will be achievable."
"Powell has been indicating a rate cut in September and these numbers sell that," Cardillo added. "If we have another good inflationary port in August, then I think we could see at least two rate cuts this year, possibly three."
Scratching below the surface, the 3.8% monthly drop in gasoline prices and the 5.0% plunge in air fares were outliers, followed by the 1.0% monthly decline in new/used autos.
The closely watched services and shelter components cooled down on a monthly basis, rising 0.1% and 0.2%, respectively.
But while those numbers are coming down year-over-year, they remain hot. Prices for services are up 5.0% from June 2023, while shelter is up 5.2% over the last twelve months.
Core CPI growth continues to run cooler than average hourly wage growth, which has put so-called "real" wage growth in positive territory for twelve consecutive months.
That's good news for an economy that derives about 70% of its GDP from consumer spending.
It's also good news for the consumer who has been saving less leaning on plastic.
Switching gears, the intrepid Labor Department also released its weekly jobless claims data USJOB=ECI, which showed the number of U.S. workers who joined the queue for unemployment benefits last week dropped by 7.1% to 222,000, the lowest reading in a month and 14,000 fewer than analysts predicted.
With this latest datum, the underlying trend - as expressed by the four-week moving average - is lower, which would appear to contradict recent signs of softness in the labor market,
But Oliver Allen, senior U.S. economist at Pantheon Macroeconomics views the dip as seasonal noise.
"Our big picture view remains that the uptrend in initial claims will continue, as slowing consumer demand and high interest rates prompt companies to lay off more staff to defend margins" Allen writes.
Any labor market softening is sure to grab Powell & Co's attention in the coming months.
"The Fed could very well lower rates sooner than September if the labor market softens at a faster clip," says Quincy Krosby, chief global strategist at LPL Financial. "Fed Chair Powell has increasingly invoked the Fed's maximum employment mandate as a rationale for lowering rates if necessary to support the labor market, and hence the economic backdrop."
Ongoing claims USJOBN=ECI, reported on a one-week delay, essentially drifted sideways, inching 0.2% lower to 1.852 million - which is still well above the 1.7 million pre-pandemic "normal."
(Stephen Culp)
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FOR THURSDAY'S EARLIER LIVE MARKETS POSTS:
S&P 500, NASDAQ TRY TO EXTEND WIN STREAKS - CLICK HERE
U.S. STOCK FUTURES FLAT, YIELDS SLIDE, AFTER COOLER CPI DATA - CLICK HERE
M&A: SHAKING OFF THE POST-PANDEMIC DOLDRUMS - CLICK HERE
FRENCH ELECTION STILL PRESENTS OPPORTUNITIES - CLICK HERE
NVIDIA CROWDING IS FALLING SHARPLY - UBS - CLICK HERE
EUROPE EDGES HIGHER BEFORE US CPI TEST - CLICK HERE
STOCK FUTURES HINT AT FURTHER RECOVERY BEFORE U.S. CPI - CLICK HERE
COUNTDOWN TO CPI - CLICK HERE
Inflation gauges https://reut.rs/4bGNmxA
CPI shelter and services https://reut.rs/3XTTZtm
Real wage growth https://reut.rs/3WehX17
Jobless claims https://reut.rs/4bHbqk5
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