BNN Bloomberg's Jon Erlichman looks at how North American markets are shaping up for the trading day.
“It may not have been as cool as yesterday’s PPI, but today’s as-expected CPI likely will not rock the boat,” said Chris Larkin at E*Trade from Morgan Stanley. “Now the primary question is whether the Fed will cut rates by 25 or 50 basis points next month. If most of the data over the next five weeks points to a slowing economy, the Fed may cut more aggressively.”
However, this CPI print does not scream out for a 50-basis point rate cut. Rather, a 25-basis point rate cut for next month is more likely. Should the labour market deteriorate at a faster clip causing concern that economic conditions are contracting too rapidly, the Fed’s worries over the path of inflation should be assuaged by this week’s reports allowing them to cut rates by 25 or 50 basis points as needed, without trepidation that stagflation is setting in.Disinflation is crystal clear in the data now. Based on the CPI data, the Fed could justify a .50 cut in September, but that’s highly unlikely.
Real estate and utilities have been the best-performing sectors so far this month, driven by the recent speculation of lower rates. Today’s report increases confidence in lower rates and could further act as a bullish catalyst for these groups — and equities in general.
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