Stock markets had little to dislike from the Consumer Price Index report. The U.S. Bureau of Labor Statistics posted a 0.2% monthly increase in CPI. Core CPI rose above 3%. The CME FedWatch tool predicted a higher chance of interest rates falling in September.
Mainstream media voiced an even more aggressive rate cut. Some are now predicting three rate cuts. This call makes little sense, since inflation is still elevated and the job market is not terrible.
Bond markets are pricing in more than one 25 bps cut. The 20+ Year Treasury Bond ETF (TLT) fell by 0.5%, raising its yield to 4.43%. The 12-month treasury bill yield closed at 3.90%, while the 10-year yield rose by 0.26% to close at 4.31%.
Bank stocks rallied on Tuesday. Bank of America (BAC), JPMorgan Chase (JPM), and Citigroup (C) all closed higher. Stock markets anticipate that lower rates would stimulate the economy. This increases deal volumes for banks.
The U.S. dollar (UUP) slipped by 0.51% to close at $27.40. The USD rally to near $28 on July 31 is now proving short-lived. The weak dollar raises the cost of imports. This aligns with Trump’s trade policy, which aims to lower the trade deficit. American firms may export more and import less as their currency resumes its descent.
