The latest inflation data came in lower than expected, reinforcing dovish messaging from Powell and supporting the idea that the Fed's tighter policy stance is effectively lowering consumer price inflation. Traders have responded by pricing in a high probability of a September rate cut, currently at 86%, with increasing odds of additional cuts by year-end. The slowing cost of shelter is seen as a notable development, even with higher energy costs compared to last month. As the Fed approaches its July 30-31 meeting, attention will focus on potential changes to the policy statement and whether officials will continue to refer to inflation as "elevated."
EQUITY
Japanese markets took a hit on Friday, particularly in tech-heavy indexes, mirroring Wall Street's magnificent seven's decline even with positive U.S. inflation data. South Korea also saw substantial losses in tech stocks and chipmakers, while Hong Kong jumped, possibly due to bargain hunting. Australia's ASX 200 reached a record high as investors shifted to sectors likely to benefit from lower interest rates.
GOLD
Gold prices dipped slightly on Friday after lower CPI data pushed prices above $2,400 an ounce. The Consumer Price Index came in at -0.1% while consensus was at 0.1%, solidifying the projection for a rate cut in September. This prospect sent gold surging past $2,400 per ounce, as lower interest rates typically make non-yielding assets like gold more attractive. The dollar and Treasury yields fell in response, further benefiting precious metals.
OIL
Oil prices jumped on Friday's London session, with Brent crude surpassing $86 per barrel. The drop in U.S. consumer prices generated hopes for rate cuts and a boost to economic growth. U.S. gasoline demand hit a four-year high for Independence Day week, while Gulf Coast refiners ramped up crude oil processing to levels not seen since 2019. The IEA predicts slowing growth, citing reduced Chinese consumption, while OPEC maintains a more optimistic forecast, contradicting perspectives on the global transition to cleaner fuels.
CURRENCY
The U.S. dollar stabilised on Friday after hitting one-month lows, with June's consumer price index showing lower annual growth at 3%, down from May's 3.3%. The euro and the pound have also pricked higher, while the Japanese yen saw higher volatility, dropping sharply from near 38-year highs around 162 to about 159, probably due to government intervention. Despite weak German wholesale price data, the euro held steady, and the pound remained flat after nearing a one-year high against the dollar.
