U.S. Indexes closed higher on Tuesday, reversing earlier pressure following the dismal earnings from IBM as a cooler than expected CPI Report helping the market to reverse earlier losses. Following the inflation metrics, which were cooler than expected across all gauges, immediate downside was seen in US yields and the Dollar, to the benefit of FX peers, spot gold, and equities. In addition, it tempered some of the hawkish bets recently seen and heard, namely, Fed Governor Waller saying that another firm core inflation reading this week would see him consider a near-term rate hike, and if it was hot, he would take it as a signal, not noise. Oil prices saw gains as US/Iran continue to trade strikes, again, across the region, with the US confirming it recently undertook further strikes on Iran ahead of the blockade restarting later today. President Trump backed off his plan to charge a 20% fee for safe passage through the Strait of Hormuz, and will pivot to trade deals to cover the US costs of assuring safe passage through the Strait. Elsewhere, Fed Chair Warsh testified in front of the House, and speaking on Tuesday’s inflation data, said it does not say mission accomplished, and does not think that after yesterday’s CPI report that everything is swell; it is one data point, and does not want to overread or cherry-pick data. The Chair will be in front of the Senate on Wednesday. Sectors were largely in the green, with Health and Consumer Staples the clear laggards, with Tech, Communications, and Financials sitting atop of the pile. Tuesday marked the start of earnings season, and the big banks issued largely excellent reports, but did see mixed price action. As mentioned above, Treasuries gained, and the Dollar lost out to G10 FX peers, with the Kiwi once again extending its recent post-RBNZ rally, and was further helped by comments from Conway overnight. Precious metals also firmed. Ahead, earnings continue, US PPI is on the radar, and of course, any US/Iran updates. US CPI was cooler-than-expected in June and will temper some of the hawkish bets recently seen after Governor Waller said that another firm core inflation reading this week would see him consider a near-term rate hike. If it was hot, Waller said he would take it as a signal, not noise, adding that he would need to see several months of softer core inflation before becoming confident that price pressures were moving back towards target. Highlighting some of the winding back of hawkish bets, post-data, for July 4.2bps of hikes are priced in (versus 9.8bps pre-data), and by year-end now 32.7bps (prev. 41.1bps). Looking at the metrics, headline M/M printed -0.4% (exp. -0.1%, prev. 0.5%) with Y/Y at 3.5% (exp. 3.8%, prev. 4.2%). Core M/M came in at 0.0% (exp. 0.3%, prev. 0.2%), with Y/Y at 2.6% (exp. 2.9%, prev. 2.9%). The index for energy fell 5.7% in June after rising 3.9% in May, 3.8% in April, and 10.9% in March. Overall, the print will quell some of the fears of sticky inflation, for now, but as Waller said on Monday, he would need to see several months of lower core inflation to feel inflation is moving in right direction, and if inflation comes down [in the next reading], he will need a couple more that way to see that as a signal. Fed Chair Warsh speaking after the data also said that yesterday’s data does not say mission accomplished, and he does not think that everything is “swell”, while reiterating his commitment to the 2% target. Oxford Economics notes headline inflation has tentatively peaked, but the bigger takeaway from the downside surprise was the benign reading of core prices, and while the Fed is worried about a broadening out of inflationary pressures, and that wasn’t evident in the June CPI details. Ahead, and as Oxford points out, there are three inflationary forces that the Fed is on high alert for: tariffs, AI, and oil passthrough. Tariff effects were not discernible, while AI-related price pressures weren’t as evident as expected. Digging through the details, OxEco notes there was some sign of oil passthrough to certain consumer goods, and this feedthrough process could take longer than expected, given recent events in the Middle East. Looking ahead to PCE, Oxford suggests it won’t be as soft as the CPI, but it will still allow Fed officials to resist pressure to hike in their upcoming meeting and reinforces their baseline forecast for them to leave rates unchanged for 2026. Numerically, their preliminary nowcast of the PCE index sees a 0.2% M/M decline in the headline index and a 0.1% increase in the core index. Pantheon Macroeconomics provisionally estimated the core PCE deflator rose by 0.16% in June, allowing the inflation rate to drop to 3.3%, from 3.4% in May. Elsewhere, Oil closed higher by 1% while Gold reversed some of Monday’s losses by closing higher by 1.5% on Tuesday.
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