Tame July CPI Takes More Air Out of the September Fed Hike Trade
July CPI landed exactly where economists expected — and that was the point. The Bureau of Labor Statistics released the July consumer price index at 8:30 a.m. ET (3:30 p.m. in Istanbul): headline inflation rose 0.1% on the month and eased to 3.4% year over year from 3.5% in June, while core CPI rose 0.2% on the month and slipped to 2.5% from 2.6%. Both prints matched the LSEG consensus. Under the hood, shelter rose just 0.1% but accounted for roughly two-thirds of the monthly all-items increase; energy fell 1.5% and gasoline 2.9%, though energy is still up 14.7% and gasoline 24.6% over 12 months.
Why it matters is the direction of the debate: the question in front of the Fed is not whether it cuts in September but whether it hikes. Ahead of the print, CME FedWatch had a 25-basis-point September increase at 48.1% for Kevin Warsh's FOMC — already down from 67% on July 31 after nonfarm payrolls fell by 23,000 in July. The tame reading took more air out of that trade and markets turned higher: in premarket trading QQQ was up 0.94% against Tuesday's close, SPY 0.33% and DIA 0.31%, with the 10-year Treasury yield at 4.68% and the 2-year at 4.21%.
The second story is again the Strait of Hormuz and the Red Sea. Yemen's government said Iran-aligned Houthis hit a commercial vessel with missiles in the Bab el-Mandeb strait, killing six; US Central Command separately disabled a Panama-flagged cargo ship attempting to run the blockade of Iranian ports. Tehran repeated that the strait stays shut until Washington agrees to war reparations and sanctions relief. Only 10 ships crossed on Monday, against roughly 130 a day before the conflict. Brent gained more than 2% overnight to $89.61 a barrel, WTI traded at $83.46, and gold reached $4,403.84 an ounce.
