On June 12th, Caijing News (Editor Xiao Xiang) reported that the S&P 500 index and the NASDAQ both hit new highs, and the 10-year US Treasury bond sold with the highest bid-to-cover ratio in two years. Perhaps at the beginning of this week, not many people thought that on the eve of the 'Super Wednesday' when the US CPI and the Fed's decision were killed, Wall Street did not seem to have bred too much tension. Instead, the stock and bond markets welcomed the arrival of this day, which is important to the global capital market, in an optimistic manner!

According to market data, the yields of various maturity U.S. bonds have generally fallen sharply overnight. At the close, the 2-year US Treasury bond yield fell by 5.1 basis points to 4.838%, the 5-year US Treasury bond yield fell by 6.7 basis points to 4.419%, the 10-year US Treasury bond yield fell by 7.1 basis points to 4.401%, and the 30-year US Treasury bond yield fell by 6.5 basis points to 4.534%.

The yield on US Treasury bonds moves in the opposite direction to the bond price. The overnight decline is also the largest daily decline in the 10-year US bond yield, known as the "anchor for global asset pricing," in almost a week.

At the same time, with Apple's stock price surging overnight, setting a new historical high, large tech stocks led the overall rise of US stocks on Tuesday. The S&P 500 index and the NASDAQ both reached a new historical high. At the close, the S&P 500 index rose 14.53 points, or 0.27%, to 5375.32, and the NASDAQ rose 151.02 points, or 0.88%, to 17343.55. Only the Dow Jones Industrial Average fell 120.62 points overnight, or 0.31%, to 38747.42.

Some industry insiders pointed out that the strong demand for the 10-year US Treasury bonds sold by the US Treasury overnight has led to speculation that the inflation data on Wednesday will help the stock and bond markets rise in tandem after the Fed cut interest rates this year.

Peter Boockvar, author of The Boock Report, said, "After many mediocre auctions, the US Treasury bond market has finally smiled. Has the market smelled the possibility of weak CPI tomorrow? Or started to worry about economic growth?

The US Treasury sold $39 billion of 10-year Treasury bonds on Tuesday, with the winning yield of 4.438%, down more than 4 basis points from the previous auction, and more than 2 basis points lower than the yield level of the secondary market when the auction ended. The yields of various maturity U.S. bonds quickly dropped after the auction results came out.

The remarkable thing about this auction is that the bid-to-cover ratio was as high as 2.67 times, the highest level in more than two years (since February 2022)- which is also a month before the beginning of the Fed's tightening cycle. The average bid-to-cover ratio for the past six 10-year Treasury auctions was 2.49 times.

Moreover, the dealer that had an obligation to buy all untaken Treasury bonds to prevent auction failure in this auction was only allocated 11.6%, the lowest since August, while the indirect bidders allocated 74.6% and the direct bidders allocated 13.8%.

From the schedule, during the six and a half hours from 20:30 Beijing time tonight when the US Labor Department announces the May CPI data to 2:30 Beijing time on Thursday morning when Fed Chairman Powell begins to preside over the rate decision meeting, the global financial market will undoubtedly usher in the most critical and heavyweight moment of the year- the Fed's rate decision day 'encounter' with the CPI release day. Although this is not unheard of in the past, it often only happens once or twice a year.

Judging from the performance of the overnight U.S. financial market, especially the bond market, many insiders seem to be looking forward to whether the CPI data to be released tonight can at least bring some good news.

According to a survey of economists by the media, the median estimate shows that the overall CPI growth rate in the United States in May is expected to remain at 3.4% year-on-year. However, month-on-month data may bring good news- it is expected that the month-on-month CPI growth rate will be only 0.1%, which is lower than the month-on-month growth rate of 0.3% in April. If the final data can meet expectations, this will also be the smallest month-on-month CPI growth rate since October 2023.

Bank of America said that falling energy prices could further increase the downward pressure on overall CPI. Bank of America economists Stephen Juneau and Michael Gapen wrote in a report to clients last week: "After rising fuel prices in April and March, gasoline prices may fall seasonally adjusted in May. This may make consumers breathe a sigh of relief. With crude oil prices falling, gasoline prices may continue to fall in the short term."

Of course, due to the rising cost of core services such as housing, insurance, and medical services, the overall core inflation rate may still remain high. But Bank of America expects these categories "to take a small step in the right direction." At present, the media survey expects the core CPI to maintain its toughness, with a month-on-month growth rate consistent with that of April 0.3%, and a year-on-year growth rate slightly down to 3.5%.

Anna Wong, the macro strategy of Bloomberg Economics, said," The May CPI report looks encouraging, and there may be a series of similar reports this summer. This should lay the foundation for the Fed to start cutting interest rates in September."

Of course, no matter how the short-term market reacts to the evening CPI data, the final global financial market trend tonight will have to wait for the Fed's resolution and Powell's press conference. As for whether the market's optimism before "Super Wednesday" can laugh until the end, we also need to wait and see.

According to a survey conducted by 22V Research, most interviewed investors are betting that tonight's CPI and Fed's resolution will trigger a "risk-on" sentiment.

In the view of Oscar Munoz and Gennadiy Goldberg, strategists at TD Securities, given recent changes in data, Powell is likely to appear somewhat optimistic, especially if May CPI shows progress in further lowering inflation rates.

According to strategists at TD Securities, "We also expect the interest rate dot map to show a reduction in the number of rate cuts in 2024 to two times. US bonds will react to the dot map and Powell's possible dovish tendencies, with moderate bull market steepening. However, given the overall background of" data dependence", the market may continue to trade in range."

At 2:30 am on June 13th Beijing time, the Federal Open Market Committee (FOMC) will hold a monetary policy press conference. Welcome mooers to book for watching~

Editor/Somer