It's bad, but good enough for the feds. The May CPI inflation came in at 4.0 percent, while core inflation remained at 5.3 percent, a minor improvement. Energy prices dropped the most by 11.7 percent following the drop in crude oil prices, while food prices rose by 6.7 percent, outpacing income growth at 3.4%. Shelter prices increased by 8.0 percent, and services excluding housing rose by 6.6 percent, both remaining elevated. The Federal Reserve is expected to keep interest rates unchanged, but concerns remain about the potential economic consequences of further rate hikes after the pause and their impact on real estate markets and financial sectors.
The S&P 500 and Nasdaq reached 14-month highs on lower CPI, encouraging a rate pause by the Federal Reserve. AI hardware provider Nvidia surpassed $1 trillion in market capitalization, while AMD faced a decline after a disappointing AI strategy update. Additionally, U.S.-listed Chinese companies saw gains following China's central bank's rate cut.
Gold prices rebounded slightly after three days of losses as investors awaited clearer direction from the Fed. The interest rate cut in China boosted stock prices and increased risk appetite in global markets, weighing safe-haven assets. While a pause in rate hikes is positive for gold, it may face pressure from increased risk appetite. Additionally, U.S. rates are expected to remain higher for longer, limiting gold's upside for the whole year.
Oil prices continued the previous day's rally on a weaker USD. The market was also influenced by industry data showing an unexpected increase in US inventories, raising concerns about weakening fuel demand. Additionally, the outlook for global oil demand remains uncertain due to economic conditions and potential interest rate hikes by central banks.
The dollar reached a three-week low following news of contracting inflation, cementing the outlook that the Federal Reserve will halt interest rate hikes today. The euro strengthened against the dollar, touching its highest level since May 22. The Bank of England is certain to raise rates while China's yuan reaches a six-month low on rate cuts.