Market Comment – Softer US inflation further fuels Fed rate cut speculation

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Market Comment – Softer US inflation further fuels Fed rate cut speculation

US CPI inflation in May came in below expectations (1.8% YoY, consensus 1.9% YoY, previous month 2% YoY), supporting the markets view that there is ro

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US CPI inflation in May came in below expectations (1.8% YoY, consensus 1.9% YoY, previous month 2% YoY), supporting the markets view that there is room for the Fed to cut rates if escalating trade tensions continue to weigh on US economic outlook. Market implied probability of a Fed rate cut in July increased to […] Treasury Note decreased significantly with the US 10-2Y yield slope steepening, in turn reflecting rising investor expectations of Fed rate cuts in the near term and boost economic growth. In Europe, bond yields remained flat across the board, although ECB’s official showed a dovish tone. Italy’s risk premium widened ahead of the Eurogroup meeting, amid the country trying to persuade the EU to postpone a decision on whether to open disciplinary procedures over its finances until after the summer, as it awaits tax data.

The US dollar was range bound, reversing the depreciation driven by a tame inflation. The TRY trimmed early depreciation after Turkey’s Central Bank maintained its policy rate unchanged, as expected, while the increasing expectations of Fed monetary policy easing also helped to support the TRY. Meanwhile, oil prices ped sharply amid rising worries over slowing demand and US supply glut.

Equity markets in Europe fluctuated in a narrow range where the inflation data injected some risk appetite, trimming slightly today’s losses.

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