U.S. Equity Markets eventually saw strength on Wednesday, in a reversal of post-CPI moves, with the tech-heavy NDX outperforming and buoyed by strength in mega-cap names such as Nvidia (NVDA) (+8%). Nonetheless, sectors were mixed with Tech sitting atop the pile with Consumer Staples and Energy lagging, despite the resurgence in the crude complex amid the turnaround in risk sentiment and potential production shut-in on the Gulf of Mexico due to Hurricane Francine. It was a choppy day overall and started with the Dollar seeing weakness in the wake of the US Presidential debate whereby the majority, highlighted by betting markets and a CNN poll, suggested Harris won vs. Trump and she is largely seen as Dollar-negative (relative to Trump). Thereafter the next big risk event was US CPI, which overall was mixed, but was largely dominated by hotter-than-expected core CPI M/M, although it was largely due to upward surprises in shelter and transport services, which are not expected to be ongoing concerns. In wake of the data, which significantly backs the case for a 25bps cut by the Fed next (highlighted by Citi adjusting its call to 25bps from 50bps) we saw Dollar and Treasury strength, accompanied by stock weakness which soon led to a clear flight-to-quality trade. However, through the US afternoon, and on no clear headline driver, the moves reversed and noticed risk-on trade supporting US indices, highlighted by them settling at highs. Elsewhere, there was a very strong US 10 Year Auction, albeit garnering little reaction, while the US government is reportedly considering allowing Nvidia (NVDA) to export advanced chips to Saudi Arabia. Goldman Sachs CEO was also on the wires, whereby Solomon was speaking on Fed expectations, and he noted he sees two, maybe three rate cuts as they move through the fall, and his best guess for the September rate cut meeting is 25bps but thinks there is a case to be made for 50. Core CPI M/M was hotter than expected, as it came in at 0.3% (exp. & prev. 0.2%), with the unrounded figure at 0.281%, as it reflected upward surprises in shelter and transport services. Core Y/Y was in line at 3.2% (exp. & prev. 3.2%), as was headline M/M at 0.2% (exp. & prev. 0.2%), and unrounded at 0.187%. Headline CPI Y/Y was slightly softer than anticipated and printed 2.5% (exp. 2.6%, prev. 2.9%). On the data set, Pantheon Macroeconomics notes that the fundamental story of sustained disinflation remains unaltered by this inflation report, as the pick-up in the core index was driven by components that have a much smaller weight in the core PCE deflator, the Fed’s preferred inflation gauge, or which are sourced from the PPI. Overall, Oxford Economics states that in their view inflation still has a little way to go before hitting 2% and that labour market conditions are unlikely to weaken substantially from here and argues for a gradual pace of rate cuts relative to previous easing cycles. As such, its long-held view is that the Fed will cut rates by 25bps in September and once per quarter thereafter. Elsewhere, Oil rebounded from the previous week’s meltdown, closing Wednesday with a 2.39% gain while Gold again closed flat.
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