U.S. Indexes Stocks closed higher on Wednesday, with the NASDAQ 100 outperforming as strong earnings from CoreWeave (CRWV), Lumentum (LITE), Super Micro Computer (SMCI) and Nebius (NBIS) supported the AI trade. The equal-weight S&P 500 (RSP) posted more modest gains, while sectors were predominantly firmer. Real Estate, Technology and Consumer Staples outperformed, while Consumer Discretionary, Materials and Communication Services lagged. The major macro event of the session was the July CPI report, which came in line with expectations. The report saw money markets increase confidence in a September hold, while still maintaining expectations for a 25 basis point hike by year-end. Overall, the inflation data gives the Fed greater scope to remain patient, particularly following last week’s weak July jobs report, although it was not soft enough to eliminate the prospect of further tightening later in the year. The Treasury curve bull steepened, led by declines in front-end yields, although the immediate reaction to CPI saw some two-way price action. Elsewhere, the 10-year Treasury Note Auction was not as strong as the previous offering but remained better than recent averages, pointing to healthy underlying demand for duration. In FX, the Dollar initially weakened following the CPI report before gradually paring the move, broadly tracking the recovery in the 2-year Treasury yield. The NZD and CHF underperformed among G10 peers. Energy prices settled little changed amid mixed reporting on the geopolitical backdrop. Pakistani mediators struck a more optimistic tone, suggesting there is scope to extend the 60-day MoU, while Iranian sources pushed back, stating there are currently no discussions over extending the ceasefire between the US and Iran. Meanwhile, both the US and Iran continue to claim control of the Strait of Hormuz, leaving the geopolitical outlook uncertain. Precious metals continued to advance, with increased confidence in a September Fed hold following CPI providing support as front-end Treasury yields declined. Headline CPI rose 0.1% M/M in July, in line with expectations, following the 0.4% decline in June, which had been driven by a notable 5.7% drop in energy prices. The Y/Y rate eased to 3.4% from 3.5%, also matching forecasts. Core CPI rose 0.2% M/M, in line with consensus and accelerating from June’s unchanged reading, while the Y/Y rate cooled to 2.5% from 2.6%, as expected. Overall, the report was encouraging, with both annual inflation measures ticking lower and no upside surprise in the monthly core reading. Money markets subsequently increased the probability of an unchanged rate decision in September to around 60% from 50% beforehand, with the weak July jobs report also supporting the case for patience. Looking at the drivers, shelter rose 0.1% M/M and accounted for around two-thirds of the overall monthly increase in the all-items index. Food prices also rose 0.1%, including a 0.3% increase in food away from home, while energy prices declined 1.5%. Within the core components, prices increased for medical care, airline fares, communication, education and recreation, while motor vehicle insurance was among the major indexes to decline in July. However, there is still plenty of data due before the September 16th FOMC, including another CPI and NFP report, which will further shape rate expectations given the Fed’s continued lack of explicit forward guidance. Policymakers will receive the July Core PCE report before the meeting, with Pantheon Macroeconomics now expecting a 0.16% M/M increase following yesterday’s CPI data, while Oxford Economics looks for 0.2% and Goldman Sachs 0.23%. The August PCE report, however, will not be available before the September decision. Regional Fed inflation measures were somewhat mixed. The Atlanta Fed’s Sticky-Price CPI accelerated to a 3.5% annualised M/M rate from 0.8%, with the core measure also rising to 3.5% from 0.7%. However, the less volatile Y/Y measures were more encouraging, with headline sticky CPI unchanged at 2.8% and core easing to 2.7% from 2.8%. Meanwhile, the Cleveland Fed Median CPI rose 0.3% M/M from 0.2%, while the Y/Y rate was unchanged at 2.7%. The sharp swings in the annualised monthly Atlanta Fed measures warrant some caution, while the more stable Y/Y readings suggest underlying inflation remains relatively sticky but is broadly moving in the right direction. Fed Member Collins said businesses and households in the US north-east were being squeezed by inflation. Collins noted she supported the decision to hold rates in July, describing policy as mildly restrictive, expecting disinflation gradually to be sustained. Ahead, the 2028 voter would back a hike as soon as September if data beforehand supports the decision. On last week’s NFP report, the Boston Fed President said we should not be surprised if there are periods of volatility in the figures. She noted that the overall jobs data is quite mixed and in an “unusual balance”, while risks to inflation are greater with inflation too high. Elsewhere, Oil closed lower by 0.7% while Gold ended the day with a gain of 1.2%.
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