• US April CPI was up 0.3% from March on a yearly basis, up 3.4%, in line with expectations
  • Core inflation at 3.6%, was lowest read (minus volatiles) in about three years
  • All three US majors closed at record highs

 

Overnight Wall Street enjoyed a rate relief bonanza, with US traders reacting positively after the decent CPI release.

The highlight for everyone, once the dust had settled: The core US CPI (ex volatile food & energy segments) lifted by just 0.3% in April. Annual core inflation slid from 3.8% to 3.6% (expected: 3.6%).

That is the slowest pace of inflation growth for the Fed’s fav measure in three years, circa April 2021.

Via WSJ

Wall St clocked fresh hit all‑time highs on Wednesday in New York as bond yields fell after the inflation slowdown reinforced the September betting.

Via CBA

The Nasdaq led gains and futures tied to the major US indices have continued to rallying the general feeling being the Federal Reserve will start cutting interest rates in September.

The Dow Jones added 0.9%, the S&P 500 index, 1.2% and the Nasdaq added 231 points or 1.4%.

All three indexes closed at record highs.

European stocks also climbed to new landmark highs overnight, with the Stoxx  notching a record high after the positive inflation print in the US. The continent‑wide FTSE EuroFirst 300 index rose 0.6%.

In London, the UK FTSE 100 index gained 0.2%, because England.

The US 10‑year Treasury yield fell 10 points to 4.34% and the US 2‑year Treasury yield dipped 9 points to 4.73%.

 

September? We say July: Goldman Sachs

In response to this morning’s April inflation read, GS says “we lowered our Q2 GDP tracking estimate by 0.4pp to +3.0%”.

Goldman Sachs is also tracking the Fed’s preferred measure – the Core CPI Inflation – which GS says slowed “two tenths to 3.6%”.

Core PCE is still tracking at 25bp, 2.77% Y-o-Y:

Via GS

“We continue to expect the Fed to cut the funds rate by 25bps in July and proceed with cuts at a quarterly pace thereafter.”

 

September cuts: Morgan Stanley

Morgan Stanley says US inflation continues to be stubborn, with a surprising upswing in the price of goods and services in the first few months of 2024.

“However, despite the first-quarter re-acceleration in inflation, price increases should start to slow down as the second half of the year begins, clearing the path for rate cuts.”

“The Fed will need to feel confident that there won’t be any inflation surprises before it makes its first move, likely making June or July too early to begin the trim cycle. Morgan Stanley Research expects three cuts this year, of 25 basis points each, starting in September,” MS notes.

“The data over the summer should start to give the Fed more confidence to begin whittling rates starting at the September Federal Open Market Committee meeting.”

Fed Chair J Powell reckons a “material weakening in the labor market” would be a reason to trim rates, and Morgan Stanley believes the US jobless rate this year will lift more than J expects – ending at 4.2%.

“The coming jobs data should support our view for a September start to rate cuts, with two additional cuts in November and December.”

 

McDonalds vs McInflation

Timing is everything in fast food.

Which is why the gurus of the brief burger has announced it’ll start flogging $US5 meals in the States next month.

Subsidised by Coca-Cola which will pour in $US4.6m to back the play, and inspired by the US Fed’s fight v sticky inflation, the burger maker’s US stores will start moving x4 items — McDouble or McChicken, small fries, small soft drink and a 4 x Chicken McNuggys — for $US5 kicking off end June.

As per the giant’s quarterly report, Maccas  says it’s lost the lead on affordability in a few US markets, and what’s the point if that’s the case.

US franchisees had returned to pre-pandemic levels of profitability in their restaurants, and could afford to put some of their profits into value offerings, Maccas says.

 

When not if: Clearbridge Investments

Josh Jamner investment strategy analyst at ClearBridge Investments says the in-line CPI print should “assuage near-term fears” that inflation has been re-accelerating after string of hotter prints in the first quarter.

“While the Fed will want to see further data showing that inflation has resumed its drift lower before gaining confidence that they can lower interest rates, today’s print should begin to shift the narrative back towards ‘when’ the Fed will cut in 2024 rather than ‘if’ they will cut.

“The combination of an in-line CPI and retail sales that missed expectations largely due to revisions lower for March’s very strong numbers is rather market-friendly, with the disinflationary process looking to reassert itself while the consumer shows muted but positive spending growth.

“Simply put, today’s data looks like the soft landing is continuing to play out, which should help provide some stability for equity markets that have seen a fair bit of volatility over the past month as fears of a more inflationary ‘no-landing’ took hold.”