Highlights
The USDA will issue its July S&D at 11 AM Central time today.
Yesterday morning, the government reported that inflation during June declined 0.1%; the market expected it to be up 0.1% (measured by Customer Price Index or CPI). For the past 12 months, the inflation rate was 3.0%; the market expected 3.1%. The expectation of an interest rate cut in September for the past two weeks capped with yesterday’s better-than-expected inflation number sent the stocks sharply higher again. The NASDAQ and S&P 500 soared to new all-time highs for the fourteenth time yesterday since June first and the past seven consecutive days. But profit-taking finally set-in about 30 minutes after the inflation number was released and the NASDAQ and S&P 500 closed sharply lower in the classic buy the rumor and sell the fact trading. As we have said many times, the expectation of an event will move the market more than confirmation of the event. The expectation of big corn and bean crops will move those markets more than confirmation of big crops this fall.
This is the first month since May 2020 that monthly CPI came in below 0%.
This deflation rate in June of -0.1% news means the Fed is more likely to reduce interest rates sooner rather than later. After the CPI report, the market priced-in an 85% chance the Fed will reduce interest rates in September.