DAILY MARKET NEWS – 16-05-2024

The CPI inflation report is here, and it shows a slight improvement, with headline inflation down to 3.4% from 3.5% last month, but still higher than January's 3.1%. This tiny change means the Federal Reserve is far from cutting interest rates in June, with odds dropping to just 2.7%. Core inflation, which excludes food and energy, fell from 3.8% to 3.6%, but remains well above the Fed's 2% target. Energy prices are among the biggest contributors, having increased by 7.2% this year, while food prices have been stuck at a 2.2% increase, raising doubts about the reported figures. Shelter inflation, now at 5.5%, is not accurate due to outdated lease data, masking the real impact on housing affordability. Although service inflation dropped slightly from 5.4% to 5.3%, it remains high, triggered by wage inflation in a labour market that appears weaker than official reports suggest.


Pop the champagne, because it's another all time high. Wall Street rallied, although dollar and Treasury yields fell after CPI came in softer than expected, enough to keep the two-cut narrative in sight. GameStop and AMC ended a short-lived two-day rally, while Chubb Ltd.'s gained over 7% to a record high after Warren Buffett's Berkshire Hathaway revealed a $6.72 billion stake.


Gold prices are nearing record highs, primarily attributed to softer U.S. inflation data that sent the dollar lower and raised expectations for Fed rate cuts as soon as September. The prospect of lower rates boosted non-yielding gold's appeal, and in addition to the potential economic cooldown, it also increased safe-haven demand for gold.


Oil extended Wednesday's small, volatile gains after there were signs of stronger demand in the U.S., where data showed slower inflation than expected that could indirectly boost consumption. The U.S. crude oil, gasoline, and distillate inventories have also been reported to have fallen, reflecting higher fuel demand, although the IEA cited weak demand in developed nations as the reason for cutting its demand growth estimate by 140,000 barrels per day.


The dollar steadied in London session after dropping to multi-week lows overnight, following a milder U.S. inflation report that brought Fed rate cuts back into focus, likely starting in September. Treasury yields also sank to six-week lows as traders reassessed the potential path of monetary policy. The euro fell lower as the ECB is widely expected to start cutting interest rates from record highs in June, eyeing up to three rate cuts this year.