Source: Caixin.
After the latest U.S. PPI data reinforced people's speculation that the Fed will be able to implement an interest rate cut in September, the U.S. stock and bond markets both saw a big rise on Tuesday; 52% of investors in a 22V Research survey expect Wednesday's U.S. CPI to trigger a "Risk On" sentiment.
After the latest US PPI data strengthened speculation that the Federal Reserve will be able to implement a rate cut plan in September, the US stock and bond markets both saw significant gains on Tuesday.
Just 24 hours before tonight's highly anticipated U.S. CPI report was released, last night's PPI data set a very optimistic tone for the financial markets. The data showed that U.S. PPI rose 0.1% month-on-month in July, lower than June's 0.2% month-on-month increase, and up 2.2% year-on-year in July, lower than June's 2.7% year-on-year gain, also the smallest year-on-year increase since March of this year.
Excluding food and energy, core PPI was unchanged from the previous month and up 2.4% year-on-year.
"Seeking a stable market has received more evidence of inflation cooling off. This set of PPI data, lower than expected, may be welcomed by stock market investors trying to rebound from this year's biggest correction," said Chris Larkin, E*Trade strategist at Morgan Stanley's trading platform.
Recently, the easing of inflationary pressures in the United States has strengthened Federal Reserve officials' confidence in interest rate cuts, and has refocused attention on the labor market, which is displaying greater signs of slowing down.
Atlanta Fed President Bostic said on Tuesday that recent economic data have made him "more confident" that the Fed can achieve its 2% inflation target, but he wants to see "more data" before supporting an interest rate cut. Bostic reiterated that he may be ready to cut interest rates "before the end of the year."
From the performance of the financial markets on Tuesday, investors in different fields in both the stock and bond markets enjoyed a "sunny day." The Nasdaq Composite Index concentrated in technology stocks rose 2.4% overnight driven by Nvidia and other "SevenTech" stocks. The S&P 500 was up 1.7%, while the blue chip index Dow Jones Industrial Average rose by about 409 points, or 1%.
The VIX index, known as the "panic index" of the U.S. stock market, has now fallen back to around 18, returning to the low level before non-farm payrolls last Friday.
In the bond market, yields on U.S. Treasury bonds of various maturities all fell overnight, with bond yields moving in the opposite direction to prices. The 2-year U.S. Treasury bond yield fell 8.1 basis points to 3.942%, the 5-year U.S. Treasury bond yield fell 7 basis points to 3.678%, the 10-year U.S. Treasury bond yield fell 5.7 basis points to 3.849%, and the 30-year U.S. Treasury bond yield fell 3.8 basis points to 4.163%.
Without a doubt, the mild performance of PPI data on Tuesday has given many investors more expectations for CPI on Wednesday.
"The core PPI data further shows that the Fed has done an excellent job in controlling inflation, and it is more likely to take early rate cuts. On Wednesday, July CPI data will be released. Any data point will have an amplified impact on the market because people are now very nervous," said Michael James, managing director of stock trading at Wedbush Securities.
Ian Lyngen of BMO Capital Markets believes Tuesday's data shows no sign of the Fed hesitating to cut rates next month. He noted that the correlation between Wednesday's updated CPI data and recent policy expectations is much greater.
A 22V Research survey shows that 52% of investors expect Wednesday's consumer price index to trigger a "Risk On" sentiment, that is, to pursue risk assets. However, the percentage of respondents expecting an "economic recession" has remained high.
The Chicago Mercantile Exchange's FedWatch tool shows that the probability that traders in the interest rate futures market currently expect the Fed to cut interest rates by 50 basis points in September is about 52%, and the probability of a 25 basis point cut is 48%, compared to a complete 50-50 split the day before.
At the same time, traders are still expecting the Fed to cut rates by at least 100 basis points this year.
For tonight's data, the median forecast of surveyed economists in the industry shows that the July CPI in the United States is expected to rise 0.2% month-on-month, higher than the previous month's decline of 0.1%, and the year-on-year increase in July is expected to remain at 3.0%. Core CPI, excluding energy and food prices, is expected to rise 3.2% and 0.2% year-on-year and month-on-month respectively.
Editor / jayden