Consumer Price data released today for April largely matched estimates: CPI M/M +0.3% vs +0.4% est; CPI M/M Ex Food and Energy +0.3% matching the estimate; CPI Y/Y +3.4% matching the estimate; and CPI Y/Y Ex Food and Energy +3.6%, also matching the estimate.
Core M/M at 0.3% was the lowest reading since December (glass half full) but midway between the 1-year peak at 0.5% and 0.2% low (glass half empty). Markets cheered the improvement in the short-term trend, lifting the S&P500 to a new all-time intraday high.
The dollar weakened sharply in the wake of the CPI data but has since regained its footing, now with small declines against most G10 currencies. The U.S. Dollar Index is -0.19%, recovering from an earlier 0.57% drop. The dollar’s biggest drop is -0.45% vs. the JPY, the strongest yen in six days.
A lower dollar usually means lower treasury yields, and that is the case today. U.S. yields are down in all tenors, led by the 3-year -0.071%. The 1-year yield -0.062% at 4.3769%, its lowest since April 9th. Fed Funds futures now imply a 59% probability of a rate cut at the Fed’s September meeting and 66.5% chance for a cut at the December policy meeting.
