(Bloomberg) — Treasury yields fell as a cooldown in another key measure of inflation reinforced the case for the Federal Reserve to cut rates this year.
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Bonds climbed across the US curve, with 10-year yields breaking below 4.3% and heading toward their lowest since March. Equities extended this month’s rally. Fed swaps continued to show bets on almost 50 basis points of easing by the end of 2024, which would equate to two rate reductions.
The producer price index unexpectedly declined the most in seven months, adding to evidence that inflationary pressures are moderating. Several categories that are used to calculate the Fed’s preferred inflation measure — the personal consumption expenditures price index — were softer in May than a month earlier.
Separate data showed jobless claims jumped to the highest level in nine months, which points to moderation in the labor market — even though those weekly readings tend to be very volatile.
Treasury 10-year yields fell five basis points to 4.27%. If the S&P 500 keeps its gains through the market close, the gauge will notch a fourth straight record. The Nasdaq 100 rose almost 1%. Tesla Inc. jumped after Elon Musk said shareholders backed his compensation package. Broadcom Inc. led a rally in chipmakers after announcing solid earnings and a 10-for-1 stock split.
Wall Street’s Reaction:
“The latest data in hand nudge the door a little wider open for the Fed to begin making an interest rate cut later this year. Comerica forecasts for the Fed to make its first cut of this cycle in September, followed by a second cut in December.”
“The softer PPI figures, coupled with other recent inflation data, start to throw cold water on the Fed’s overtly cautious comments from yesterday’s FOMC meeting. These shifts suggest a more favorable path ahead, potentially accelerating discussions around easing monetary policy.”
“In short, the data is clear: We’re on a more favorable path, with potential rate cuts becoming more likely as inflation continues to cool.”
“Right on cue, disinflation is in the pipeline. This keeps up, September will be live,” he said, referring to the Fed rate decision later this year.
“Jobless claims are showing cracks in the job market as inflation cools. The Fed has stayed hawkish, but they have to be careful of fighting the last war. The dovish case is building. Policymakers were behind the curve fighting inflation in 2021. We have to hope they won’t repeat the same mistake, but in the opposite direction, in 2024.”
“Thursday’s weaker-than-expected PPI data is another sign of continued progress on inflation, and it keeps the prospect of a rate cut alive in 2024.”
“The PPI data also tends to determine the trajectory of the Fed’s preferred inflation gauge, the PCE, so the soft PPI data bodes well for a soft PCE reading, which will be released later this month.”
“Monthly changes in producer prices are volatile but still, markets should be encouraged with this month’s report.”
“Given the macro landscape, the Fed will likely begin cutting rates later this year, but some of the stickier components have to show signs of easing before they can commence with a cut.”
“This morning’s PPI report is more data in the correct direction – significantly lower-than-expected inflation.”
“The data further strengthens the case that the Fed’s next move will be a cut (either in late 2024 or early 2025), so we expect the market to continue making records in the near future.”
“The surprise drop in wholesale prices helps support expectations that disinflation has begun to inch lower on a more sustained basis.”
Key events this week:
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Bank of Japan’s monetary policy decision, Friday
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Chicago Fed President Austan Goolsbee speaks, Friday
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US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 rose 0.3% as of 9:41 a.m. New York time
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The Nasdaq 100 rose 0.9%
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The Dow Jones Industrial Average fell 0.4%
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The Stoxx Europe 600 fell 0.9%
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The MSCI World Index fell 0.1%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0806
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The British pound was little changed at $1.2788
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The Japanese yen fell 0.3% to 157.14 per dollar
Cryptocurrencies
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Bitcoin rose 0.2% to $68,242.01
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Ether fell 1% to $3,518.21
Bonds
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The yield on 10-year Treasuries declined five basis points to 4.27%
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Germany’s 10-year yield was little changed at 2.52%
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Britain’s 10-year yield advanced two basis points to 4.15%
Commodities
This story was produced with the assistance of Bloomberg Automation.
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