The US CPI data was the pertinent market news yesterday, falling faster than forecast to 3% in June, a positive sign for the Fed. The cooler-than-expected data pushed Treasury yields down, and prompted speculation that the Federal Reserve would cut interest rates as soon as September. The two-year Treasury yield fell to a four-month low of 4.49%. A multi-day rally for the S&P 500 came to an end following the data. This is mostly due to a rotation out of mega-cap stocks like Big Tech groups, and into smaller companies, which are expected to benefit more from lower interest rates. Indicated by the Russell 2000 rising 3.6%, its best day since November.
The US CPI data has rippled through Asian markets this morning, with the Hang Seng index rising 1.6%, the rate-sensitive property sector leading gains. Henderson Land added 6.9%, Hang Lung Group rose by 4% and Link REIT, the largest real estate investment trust in Asia, climbed 5.6%. Meanwhile, Asian tech stocks slumped, mirroring the rotation out of big tech seen in the US. In currency markets, the yen has been volatile as the Bank of Japan conducted so-called rate checks with traders, reinforcing the belief that authorities intervened in the market on Thursday to prop up the currency. It will be interesting to see if intervention continues in order to maintain credibility.
In other markets: West Texas Intermediate oil rose for a third day, helped along by the CPI, and Gold fell after a sharp rally yesterday.
Data wise today, we have University of Michigan consumer sentiment, and US PPI at 1:30pm. In equity markets: Citigroup, JPMorgan, and Wells Fargo’s earnings are also due.
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