Markets:
- Gold rose $3 to $2,319
- The yield on US 10-year bonds fell by 7 basis points to 4.33%.
- West Texas Intermediate crude rose 46 cents to $82.39
- The Standard & Poor's 500 index rose 0.8% to a record high
- The Australian dollar is advancing, and the dollar is lagging
Today's session witnessed several surprises. The big event came early in the day as the CPI came in below all expectations, leading to a sharp decline in the dollar. Core CPI was +0.16% compared to +0.3% expected and many details (excluding shelter) were weak. This led to a broad sell-off in the US dollar, including a 150-pip drop in the USD/JPY and significant gains in the Australian and New Zealand dollars. Stocks liked the news and jumped to record highs with Apple shares rising more than 12% in the past two days.
Among these moves was the expectation that Powell would be pessimistic, as he has done many times this year. Instead, the FOMC chart showed just one cut this year compared to the two cuts that were fully priced into the market after the CPI. Powell said that these numbers depend heavily on data, but the market wants more indication of the possibility of a rate cut in September.
In response, the US dollar recovered a significant portion of its losses with the USD/JPY pair rising to 156.85, about 110 pips from its lows. The other corrections were not so large but they all exceeded 50%, and stocks returned a fair portion of the gains.
The result again leaves the market in a position to move with each data point and the PPI is set to rise tomorrow.
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