- Wall Street confident on Fed hawkish skip
- Headline inflation drops to 4.0% and expected to continue to fall in June
- US Treasury 10-year yields rises 9.9 basis points to 3.835%
A cooling inflation report is fueling this bull market as the Fed should have no problem skipping a rate hike on Wednesday. Wall Street is becoming a little bit hopeful here that an FOMC June skip could eventually become a July pause. Inflation is mostly heading lower and some of the leading indicators (car wholesale prices, weakening consumer) support the argument that the disinflation process will continue. The dollar is tumbling as Fed rate hike bets get trimmed following in-line inflation report that mostly suggests that inflation will continue to work its way to the Fed’s target.
CPI
Inflation rose at a 4% annual rate, which is the lowest level since March 2021 and more than half of the pandemic-era peak we saw last June. Shelter prices rose 0.6% (rent index rose 0.5% as did owner’s equivalent rent) and were the biggest contributor to the 0.1% monthly gain. Tumbling gas prices was welcome news as that decline was the largest one of the year.
The hawks at the Fed won’t be quickly abandoning their tightening calls as core inflation remains elevated. On a monthly basis, core inflation looked sticky as it increased by 0.4%, matching both the estimate and prior reading. The year-over-year core reading printed at 5.3%, down from the 5.5% prior reading, but hotter than the 5.2% consensus estimate.
A June hold is a done deal and the July FOMC decision should be a coin flip as the disinflation process will likely continue, but signs of stickiness remain. The super core inflation rate heated up and used vehicle prices, clothing and personal care remained in demand. The jump up in used vehicle prices however should not remain given the weakness at the wholesale level. Manheim’s wholesale used-vehicle price index fell 2.7% in May from April.
Crypto
The risk-on rally that stemmed from news that inflation fell to the lowest levels since early 2021 did not give crypto much of a boost. The focus for many traders is when will Altcoins stabilize? Too many key blockchain protocol cryptos are at risk of being deemed a security and that could kill crypto interest in the US.
Bitcoin remains anchored around the $26,000 level and that could hold as investors contemplate reducing their altcoin exposure and increasing their BTC holdings.