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Briefing.com Summary:
*Equity futures market spikes after better-than-feared CPI headline.
*July CPI met expectations, but that doesn't mean the report sent an "all clear" inflation signal.
*The market continues to spy a rate cut at the September FOMC meeting.
The stock market tried to keep last week's momentum going on Monday, but it ran out of gas and settled into a consolidation trade that produced modest, but broad-based, losses. The lack of buying conviction was understandable in front of today's release of the July Consumer Price Index (CPI), which is a key inflation report that contributes to the market's view of inflation and the outlook for monetary policy.
That report, which was released at 8:30 a.m. ET, was greeted warmly. The reason being is that it was better than feared from a headline standpoint.
Total CPI increased 0.2% month-over-month, as expected. Core CPI, which excludes food and energy, rose 0.3% month-over-month, also as expected. Those readings left CPI up 2.7% year-over-year, unchanged from June, and core CPI up 3.1% year-over-year, up from 2.9% in June.
The key takeaway from the report lurks in the details. The headline readings look good, yet there are enough component indexes exhibiting tariff-induced inflation pressures (i.e., large month-over-month changes) that one can't walk away with an "all-clear" inflation signal from this report. It seems doubtful that all Fed officials will, given the 3.1% year-over-year reading for core CPI.
Our view notwithstanding, there was a positive knee-jerk reaction in both the Treasury market and the equity futures market.
The 2-yr note yield went from 3.77% to 3.73%, down two basis points from yesterday. It is currently at 3.72%. The 10-yr note yield went from 4.29% to 4.25%. It is currently at 4.27%, unchanged from yesterday.
The equity futures were little changed in front of the CPI report but spiked after the release. The S&P 500 futures are up 39 points and are trading 0.7% above fair value, the Nasdaq 100 futures are up 161 points and are trading 0.7% above fair value, and the Dow Jones Industrial Average futures are up 262 points and are trading 0.6% above fair value.
That has set the stage for a higher start in what can be described as a knee-jerk relief trade, rooted in the notion that "things could have been worse." It is also rooted in a belief that, because things weren't worse, the Fed will step up and cut rates at the September FOMC meeting, as had been expected.
The probability of a 25-basis point rate cut to 4.00-4.25% has jumped to 91.8% versus 85.9% a day ago, according to the CEM FedWatch Tool.
Separately, traders and investors will also be watching the likes of Circle Internet Group (CRCL) and On Holding (ONON). Both are up sharply in pre-market trading following their earnings reports.
