Morning Report
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The unexpected fall in US headline inflation in June suggests that the disinflationary impulse is quickly gathering momentum, supporting the case for US rate cuts in the coming months. Markets have now priced in 62 basis points of rate cuts this year, compared with 48 basis points a week ago. US bond yields were lower across the curve. The US dollar declined on the back of the lower yields. The Aussie traded higher, while the Yen outperformed, with reports suggesting the BOJ intervened to prop up the Yen. US equities were mixed, with falls in tech megacaps dragging down key equity indices. Real estate shares jumped 2.7% - the biggest gain of 2024. The S&P 500 sank 0.9% to 5,584.54. The Nasdaq declined 1.95% to 18,283.41. The industrial heavy Dow Jones outperformed, up 0.1% to 39,753.75. The ASX200 gained 0.9% to close at 7,889 – a three-month high. US bond yields were lower across the curve. The 2-year bond yield declined 11 basis points to 4.51%. The 10-year treasury yield declined 7 basis points to 4.21%. Australian yields were also lower. The 3-year government bond yield (futures) declined 6 basis points to 4.02%, while the 10-year government bond yield (futures) declined 5 basis points to 4.33%. The US dollar was lower (-0.6%) on the back of the fall in yields. The US dollar index fell to a low of 104.08 before settling at 104.46. The Aussie appreciated against the US dollar (+0.2%). The AUD/USD pair increased to a high of 0.6799 (highest since early January this year), before settling at 0.6758. Commodities were generally higher, with gold, copper, and oil all higher. Inflation expectations over the year ahead edged lower to 4.3% in July, from 4.4% in June. Germany’s inflation rate was confirmed at +2.2%yr in June from +2.4%yr in May. The UK economy grew 0.4% in May adding to the cumulative 1.5% increase in GDP since December 2023. Core machinery orders fell 3.2% in May, following a fall of 2.9% in April. In the United States, inflation unexpectedly declined by 0.1% in June, to be +3.0% higher in annual terms. Chicago Fed president, Austan Goolsbee, said the inflation report provides the evidence he’s been waiting for to be confident the Fed is on track to get inflation back down to its 2% target. Initial jobless claims were at 222k last week, with continuing claims at 1.852m. Westpac IQ is a service provided by Westpac Banking Corporation.

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https://www.westpaciq.com.au/economics/2024/07/morning-report-12-july-2024