S&P 500 futures remained unchanged as global markets approached all-time highs. Investor sentiment is buoyed by expectations of a U.S. Federal Reserve interest rate cut in September, contingent on the upcoming inflation report. A modest inflation rise of 0.3% is considered acceptable, potentially leading the Fed to overlook slight inflation increases to support the economy. Analysts predict the CPI report could significantly impact market conditions, making investor optimism contingent on inflation readings aligning with forecasts.
The "Fed put" is in full effect, according to JPMorgan "We expect moderate weakening in the macro data but enough to trigger a prompt Fed response" in September.
Tomorrow's US CPI report ... could prove to be one of the larger events of the summer for markets." Jim Reid and his team at Deutsche Bank told clients this morning.
Analyst consensus is that inflation will tick up 0.3% to 3%, according to ING, a small enough rise that the Fed will be able to ignore it in favor of cutting rates.
If CPI goes up by 0.3% or less, "That is a number that can probably be seen as acceptable for the Federal Reserve to proceed with a September cut (90% priced in)."
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