Market Analysis: U.S. Inflation Report to Test Markets Amid Rate Cut Expectations
As the markets brace for Thursday's U.S. inflation report, the possibility of the first Federal Reserve rate cut of this cycle in September looms large. Consensus suggests that the consumer price report for June may show a slight moderation in the annual change to 3.1% from 3.3% the previous month. Currently, Fed funds futures indicate a 70% chance of an easing at the September meeting, according to CME FedWatch.
However, rate-cut expectations have been volatile this year, and any unexpected spike in inflation could disrupt projections and impact asset prices. Fed Chair Jerome Powell, in his recent testimony before Congress, emphasized that rate decisions will be made as needed, refuting claims that a September cut could be politically motivated.
Despite these uncertainties, Wall Street saw gains on Wednesday, with the S&P 500 and Nasdaq both reaching record highs. Second-quarter earnings season is on the horizon, with major banks like JPMorgan set to report soon.
Overseas, central banks are also facing rate decisions. Bank of England's Chief Economist hinted at no rate cut in August, while New Zealand's central bank left rates unchanged but hinted at possible easing in the future. The Bank of Korea is expected to maintain its policy rate, with a potential cut in the next quarter. In China, concerns linger over deflation and weak demand, as consumer prices grew below expectations in June.
Key events on Thursday include the Bank of Korea and Malaysia central bank meetings, along with the U.S. consumer price index report for June. These developments are likely to provide further direction to global markets.