On the economic calendar, the US CPI data will be released at 8:30 AM. Although the numbers are not likely to impact the July Fed decision (a 25 bp hike is pretty much all baked in the cake), it COULD be a difference between one more hike and no more hikes in 2023. Expectations for the numbers show:
- CPI MoM 0.3% versus 0.1% last month
- CPI ex-food and energy is expected to rise by 0.3% versus 0.4% last month
- CPI YoY is expected to fall sharply to 3.1% from 4.0%. This is as a result of base effects. More specifically a year ago, the CPI increased by 1.3%. That number will drop out of the equation and be replaced by a much lower number. If the MoM number increases by 0.1% or less, the YoY could see a sub-3.0% level
- CPI ex-food and energy is expected to dip to 5.0% from 5.3%. The MoM from a year ago was 0.7%. Like the headline number, a MoM gain of 0.2% or 0.1% (or lower) could see a YoY fall to less than 5%.
Services less energy rose by 6.6% YoY last month. That component of CPI accounts for 58% of the total CPI. The biggest component of that calculation is the Shelter component (34.56% of total CPI). The shelter component is up 8.0% on the year and rose by 0.6% last month. Analysts and traders keep on looking for an easing of that component. Will it happen this month or will the trend continue that helps to keep service/core prices sticky?
A lower number will lead to a lower dollar, lower rates, and rising stocks. Something higher and expect the opposite as markets price in more Fed tightening. Markets are still estimating a terminal rate between 5.25% and 5.5% (one more hike). The Federal Reserve is forecasting two more hikes between now and the year-end with a July hike expected. The current rate is 5.25%.