Wall Street reacted nervously on Thursday to good news on inflation. The Dow was up, but the S&P 500 and Nasdaq were down for the session.
This was despite the June Consumer Price Index (CPI) coming in better than expected.
Month on month, the CPI eased by 0.1% – a shock because few, if any, analysts had expected a decline.
This took the annual rate down to 3%, the lowest annual rate in more than three years, while the core rate also improved. The rise of 0.1% was less than expected, and the 3.3% annual rate was slightly lower than the 3.4% forecast.
The CPI is now a third of what it was at its 9.1% peak in June 2022, in the immediate aftermath of the Russian invasion of Ukraine.
While the Nasdaq and the S&P 500 fell, the Dow edged higher, and gold surged back over the $2,400 an ounce level to trade around $2,419 at 6:40 am Sydney time.
The Australian dollar price was around $3,572, according to the World Gold Council.
Economists saw it as an encouraging sign for the Federal Reserve as it considers whether to cut rates and when. However, the unexpected fall raised a small warning bell for some economists that the economy might be cooling more quickly than it seems.
Analysts said the fall in the headline rate was due to a 3.8% slide in petrol prices, which more than offset 0.2% increases in both food prices and shelter (housing costs).
Notably, used vehicle prices fell 1.5% in June and were down 10.1% from a year ago. The item was one of the main drivers in the initial surge in inflation back in 2021 but has been falling for more than 20 months. Timber (lumber) prices are also down sharply.
The news saw US Treasury bond yields tumble. The yield on the 10-year bonds fell 8 basis points to 4.2%. The two-year note yield was down 8 basis points to 4.52%. The US dollar eased with the Aussie, though it remained around 67.50 US cents.
“The latest inflation numbers put us firmly on the path for a September Fed rate cut,” said Seema Shah, chief global strategist at Principal Asset Management.
“The smallest gain in core CPI since 2021 surely gives the Fed confidence that Q1’s hot CPI readings were a bump in the road and builds momentum for multiple rate cuts this year.”
The sell-off in tech stocks, especially the Nasdaq, saw significant drops but no change in the top three most valuable stocks. Apple remained on top with $3.39 trillion after a 2.3% fall, Microsoft was second after a 2.4% slide to $3.38 trillion, and Nvidia remained third at $3.13 trillion after a larger 5%+ slide.
