Markets
The US July CPI inflation report printed bang in line with consensus today. Headline inflation rose by 0.1% M/M and 3.4% Y/Y (down from 3.5%). The BLS, responsible for the release, said that the index for shelter rose 0.1% in July and accounted for roughly two-thirds of the monthly headline increase. Energy prices dropped by 1.5% M/M after falling 5.7% in June. They are still 14.7% higher than July of last year though. Food price growth was registered at 0.2% M/M (+3% Y/Y). Core CPI increased by 0.2% M/M and 2.5% Y/Y (from 2.6%). The latter matches the lowest level since March 2021. Core CPI indexes that increased over the month include medical care (+0.4%), airline fares (+2.2%), communication (+0.6%), education (+0.5%), and recreation (+0.2%). Conversely, the index for motor vehicle insurance (-0.3% M/M) was among the major indexes that decreased in July. Goods prices, excluding food and energy commodities, rebounded following two months of declines while services prices, excluding energy and rents, rose 0.2% (+3% Y/Y).
US Treasuries spiked slightly higher on the CPI print, but the move remains guarded and smaller than the one seen after last Friday’s disappointing payrolls (which was completely reversed by Monday). Daily changes on the US curve currently range between -2.1 bps (30-yr) and -4.3 bps (5-yr). The dollar is a tad softer at 1.1550 (from 1.1535 ahead of the release). Main US equity benchmarks open up to 0.5% stronger. Today’s CPI holds a truth for everyone. The dovish reading points to the lowest core CPI pace in 5 years time. It buys the FOMC time to assess the impact of the ongoing energy crisis and its broader impact. The more hawkish reading is that vigilance against upside risks remains required as the length of the current inflation overshoot calls for action before it’s too late especially given solid growth and a steady labour market. The market implied probability of a September 25 bps rate hike declined from 50% to 40%. FOMC Minutes of the July Fed meeting (released next Wednesday) and the Kansas City Fed’s Jackson Hole Symposium (August 27-29) are the next key events to help shape market expectations on future interest rate policy.
Tonight, the US Treasury continues its mid-month refinancing operation with a $42bn 10-yr Note sale. The timing is tricky given the recent underperformance at the (very) long end of the curve. The more so when it comes to tomorrow’s $25bn 30-yr Bond sale. The US 30-yr yield even matched its highest level since 2007 yesterday. Are investors attracted by current yields given that underlying dynamics show that they are an expression of a rising term premium (fiscal worries?!) rather than an inflation risk premium?
News & Views
The International Energy Agency in its August Oil Market Monitor downgraded its global oil demand forecasts from 1.05mn b/d to 1.56mn b/d Y/Y with the Hormuz closure and elevated fuel prices weighing on consumption. Next year demand is expected to rebound by 2.42mn b/d (up from 2.01mn in previous forecast) with consumption seen at 105.7mn b/d. This year’s global oil supply forecast was also revised down, from 102.6mn b/d in July to 102mn in today’s report. The resulting Q3 2026 supply deficit is 1.8mn b/d — more than double the prior estimate — with global observed inventories falling 69mn barrels in July alone. Next year, global supply is expected to rebound by 8.3mn b/d to 110.3mn b/d, significantly outpacing projected demand growth.
. The BLS, responsible for the release, said that the index for shelter rose 0.1% in July and accounted for roughly two-thirds of the monthly headline increase. Energy prices dropped by 1.5% M/M after falling 5.7% in June. They are still 14.7% higher than July of last year though. Food price growth was registered at 0.2% M/M (+3% Y/Y). Core CPI increased by 0.2% M/M and 2.5% Y/Y (from 2.6%). The latter matches the lowest level since March 2021. Core CPI indexes that increased over the month include medical care (+0.4%), airline fares (+2.2%), communication (+0.6%), education (+0.5%), and recreation (+0.2%). Conversely, the index for motor vehicle insurance (-0.3% M/M) was among the major indexes that decreased in July. Goods prices, excluding food and energy commodities, rebounded following two months of declines while services prices, excluding energy and rents, rose 0.2% (+3% Y/Y).){kind=link}