July CPI Up 2.7% Year-on-Year, Below Expectations
92% Chance of September Rate Cut... 51% Odds for Three Cuts This Year
Core CPI Rises 3.1%, Adding Uncertainty to Rate Outlook
July PPI and Retail Sales Data to Be Released on August 14-15
The three major indices on the New York Stock Exchange opened higher on August 12 (local time). Investor sentiment improved as expectations for a September rate cut grew following the release of the July Consumer Price Index (CPI), which came in below market forecasts.
As of 11:10 a.m. on the New York Stock Exchange, the blue-chip Dow Jones Industrial Average (Dow) was up 470.02 points (1.07%) at 44,445.11. The large-cap S&P 500 index rose 51.41 points (0.81%) to 6,424.86, while the tech-heavy Nasdaq index climbed 185.44 points (0.87%) to 21,570.84.
According to the U.S. Department of Labor, the July CPI rose 2.7% year-on-year, the same as in June (2.7%) and below the market forecast of 2.8%. The core CPI, which excludes volatile energy and food prices, increased by 3.1% year-on-year, surpassing both June's figure (2.9%) and the forecast (3.0%). While the rise in core CPI is a source of concern, the market focused on the stagnation of headline CPI and increased expectations for a rate cut.
Immediately after the CPI release, U.S. President Donald Trump threatened to sue Federal Reserve Chair Jerome Powell over excessive spending on the renovation of the Fed’s headquarters. He also reiterated his call for a rate cut, saying, "Powell, who always acts too late, must cut rates immediately. The damage he is causing is incalculable."
The interest rate futures market is currently pricing in a 92.2% probability that the Fed will lower its benchmark rate by 0.25 percentage points from the current 4.25-4.5% at the September Federal Open Market Committee (FOMC) meeting. This is up from 85.9% the previous day. The probability of a total cut of 0.5 percentage points by October and 0.75 percentage points by December has also risen to 61.1% and 51.2%, respectively.
Alexandra Wilson-Elizondo, Global Co-Chief Investment Officer of Multi-Asset Solutions at Goldman Sachs, analyzed, "There is no clear inflationary impact from tariffs. Companies are offsetting cost pressures by carefully adjusting prices, taking into account consumer price sensitivity and drawing down inventories." She added, "Today's inflation data supports the possibility of a 'precautionary' rate cut in September, which will be a key driver for the market."
Tom Hainlin, domestic investment strategist at US Bank Asset Management Group, commented, "The current stock market appears to be in a Goldilocks scenario-neither overheated nor too cool. More and more people are expecting a rate cut in September. With rates falling and corporate earnings rising, this is a very favorable environment for the overall stock market."
Other economic indicators are also scheduled for release this week. The July Producer Price Index (PPI), to be announced on August 14, is expected to rise 0.2% from the previous month, while July retail sales, due on August 15, are projected to increase by 0.5%.
Tariff uncertainty has also eased. President Trump signed an executive order the previous day to extend the reduction of high tariffs on China for another 90 days, maintaining the 'tariff truce' between the two countries. Previously, the U.S. and China agreed to each lower tariffs on the other country by 115 percentage points for 90 days, so currently, the U.S. is imposing a 30% tariff on China, and China is imposing a 10% tariff on the U.S.
U.S. Treasury yields are moving within a narrow range. The benchmark 10-year Treasury yield, a global bond market indicator, fell by 1 basis point (1bp = 0.01 percentage point) to 4.27% compared to the previous session, while the 2-year Treasury yield, which is sensitive to monetary policy, rose by 1bp to 3.76%.
By stock, Circle Internet Group, a stablecoin issuer, jumped 6.63% after posting a surprise second-quarter earnings report. Intel rose 3.8% after CEO Lipbu Tan, who had been pressured to resign by President Trump, visited the White House and spoke with the President the previous day. Nvidia was down 0.19%, and Nestle was down 0.6%.
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