Stocks, bonds and the dollar saw small moves, with a mixed inflation report reinforcing speculation the Federal Reserve will pause its rate hikes — but refrain from calling the end of its tightening cycle.
The S&P 500 was little changed. The Dow Jones Industrial Average underperformed. American Airlines Group Inc. led industry losses after cutting its earnings outlook amid a jump in jet fuel prices. Most megacaps rose, with the chiefs of five of the 10 biggest US companies appearing at a closed-door Senate meeting to shape how artificial intelligence is regulated. Apple Inc. fell as China flagged security problems with iPhones.
Two-year yields dropped below 5%. The greenback edged lower. Swaps tied to the next two Federal Open Market Committee meetings continued to price in little chance of a hike next week — and about 50% odds of one in November.
The core consumer price index, which excludes food and energy costs, advanced 0.3% from July, the first acceleration in six months. From a year ago, it increased 4.3% — in line with estimates and marking the smallest advance in nearly two years. It’s still above the Fed’s 2% goal.
To Krishna Guha at Evercore ISI, while the report isn’t amazing as far as policy goes, it’s not a disaster either.
“Not a great CPI report, but not something that changes the basic Fed outlook,” said Guha, the firm’s vice chairman. “This Fed is not itching to hike again and we think it would take significantly more to push the FOMC to actually deliver another increase — with our base case remaining the Fed is done here.”
More Comments on CPI:
“This isn’t the goldilocks number that investors were hoping for, but markets can still trade in a range – as inflation is high enough to keep the Fed still in play — but not hot enough for a shift away from the ‘Fed is almost done’ narrative.”
“As long as the economy remains resilient and inflation doesn’t reignite, the market can rally into year-end, once we get past the seasonally weak months of September and October.”
“Today’s middle-of-the-road CPI report may have disappointed those who were looking for inflation to establish a clear cooling trend. But given how high oil prices are and how strong recent economic data has been, the fact that the numbers were more or less in line with estimates may be seen as a small victory. There will continue to be bumps in this road, but the Fed is still on track to leave interest rates unchanged after next week’s policy meeting.”
“Today’s US CPI report wasn’t earth-shattering. This print likely makes a case for another pause for the FOMC in September, but provides little clarity into Fed action beyond this. We expect conflicting pronouncements from the Fed heading into the autumn and consensus over the best path forward is unlikely, creating the potential for a contentious November meeting.”
“It’s tempting to read too much into the month-on-month data in this hyper data-dependent central bank age. I think this doesn’t move the needle too much. We still expect the Fed to hold on rates at the next meeting. Markets are pricing in slightly higher chance of another hike later this year.”
“While these numbers do not change our, and the market’s expectations that the Fed will hold the target Fed Funds rate unchanged at the September meeting, the slightly stronger number can influence the tone of the press conference and Summary of Economic Projections.”
“We continue to expect some reduction in the number of participants projecting further hikes, but probably not enough to move the median projection of one more rate hike. That said, we believe that we have likely seen the last rate hike for this cycle, as the economic data that the Fed will see over the coming months will keep them on hold and allow the impact of 5.25% of prior hikes to slow the economy and inflation.”
“This inflation report places the Fed in a more comfortable wait-and-see situation: the marginally higher than expected inflation comes from the evolution of energy prices – nothing the Fed should be worrying too much about at the moment.”
“In our view, the economy maintains decent momentum, but is showing signs of slowing, and thus the Federal Reserve is likely to pause next week and wait for additional data to unfold for the November meeting.”
“The upside surprise to the August core monthly print will be a disappointment for Fed policymakers. However, the broad trend of disinflation remains intact while there is ongoing evidence of a cooling labor market. This means there is still a strong case for a pause at next week’s Fed meeting.”
“In our view, we believe there is room for further gains for US equities this year. But we think the economic reality of restrictive monetary policy will eventually catch up with the market. A likely tip into recession next year will damage the outlook for corporate earnings and can weigh on multiples. For this reason, we think a cautious and defensive positioning in portfolios still makes sense.”
“The inflation print likely is not enough to tilt next week’s Fed call towards a hike, yet it also hasn’t entirely cleared up the question of a November pause versus hike.”
Corporate News
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This story was produced with the assistance of Bloomberg Automation.
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