US Markets Mixed After Inflation Drop – Dow Down 0.5%

US stock indices had a mixed trading day yesterday after key PPI data came in well under expectations, pushing the market to lock in more Fed rate cuts in the coming months. The Dow dropped 0.48% to 45,490, while the S&P and Nasdaq again notched up fresh record closes as AI stocks powered higher (Oracle up 36%), finishing at 6,532 and 21,886 respectively. Treasury yields pulled back after the data, the 2-year down 1.2 basis points to 3.544% and the 10-year down 3.9 basis points to 4.045%. However, the dollar remained relatively steady, with the DXY up 0.02% to 97.81. Oil prices jumped higher as geopolitical tensions increased in both the Middle East and Eastern Europe, Brent up 1.66% to $67.49 and WTI up 1.64% to $63.66 a barrel. Gold also gained ground on haven flows, although it stopped just short of another record close, up 0.39% to $3,640.38 an ounce.

CPI Data in Focus Today

Yesterday’s PPI data all but locked in 75 basis points worth of Fed rate cuts by the year-end for many in the market. However, tonight’s CPI data could have a lot more to say about those odds by the end of today’s trading. The market is now 92% pricing in a 25-basis-point Fed rate cut next week, with the odds for 75 basis points by December now sitting at 64%. Tonight’s month-on-month CPI and Core CPI numbers are expected to come in at +0.3%, with the year-on-year number at +2.9%. Anything significantly off these prints will see big moves in Fed rate cut expectations—although probably not for next week—and substantial moves in the market. A lower print will see odds for the three rate cuts increase hugely and put pressure on yields and the dollar, whereas anything “sticky” could see some unwinding of those bets and consequent moves in the opposite direction.

Busy Calendar Day with a Huge Hour of Power Ahead for Traders

It is a busy calendar day ahead for traders today, with big central bank updates coming alongside key data releases, with the cross-over time between London and New York having the potential to really hit markets. Asian markets will see the initial focus on the land of the long white cloud, with Reserve Bank of New Zealand Governor Christian Hawkesby due to speak in Auckland. The big updates for the day will come later, with the European Central Bank due to update the market on its latest interest rate call just 15 minutes ahead of the key US CPI (exp. +0.3% m/m, +2.9% y/y) and Core CPI (exp. +0.3% m/m) data releases. The US Weekly Unemployment Claims numbers are due out at the same time as the CPI data, but expect the inflation numbers to dominate. Just to add a bit more spice to the mix, the ECB press conference is scheduled just 15 minutes after the US data, with traders expecting the EURUSD to be particularly lively in that “Hour of Power.”

Source: IC Markets