Key facts
- US June CPI fell 0.4%, the largest monthly decline since April 2020, primarily due to lower gasoline prices.
- The monthly core CPI declined by 0.02%, bringing the annual core inflation rate down to 2.6%.
- Market expectations for a July Federal Reserve rate hike have been significantly reduced.
- Top Fed officials, including Chairman Kevin Warsh, welcomed the inflation data but emphasized the need for more consistent readings.
- Goldman Sachs reported strong earnings, while IBM's stock dropped sharply after missing expectations.
- ASML raised its annual revenue forecast, indicating continued demand in the chip sector.
Federal Reserve officials acknowledged a significant cooling in U.S. consumer price inflation for June, with the Consumer Price Index (CPI) falling 0.4%, the largest monthly decrease since April 2020. This decline was largely attributed to lower gasoline prices, with some reports suggesting a brief Middle East ceasefire may have influenced this trend.
Despite the encouraging inflation data, Federal Reserve officials, including Chairman Kevin Warsh and Chicago Fed President Austan Goolsbee, emphasized that more consistent readings are necessary to confirm a sustained easing of price pressures. Warsh stated that while the data was positive, there is still "plenty of work to do" and he would feel more confident with better data. Goolsbee described the report as "surprisingly benign" but noted he would feel better with several more months of similar reports. Fed Governor Christopher Waller also indicated a need for multiple months of easing inflation before feeling comfortable.
The softer-than-expected inflation figures have led financial markets to scale back expectations for an immediate interest rate hike, with traders now anticipating a skip in July. The core CPI, excluding volatile energy and food prices, saw its first monthly decline in over six years, bringing the annual rate down to 2.6%.
In corporate news, Goldman Sachs' stock surged 9% following strong earnings driven by volatile market trading and IPO fees. Conversely, IBM's stock plunged 25% after missing earnings estimates and admitting to misjudging business trends. However, European chip manufacturer ASML reported blockbuster results and increased its annual revenue forecast, citing continued demand in the chip sector.
Globally, world oil prices continued to rise above $85 a barrel amid persistent U.S.-Iran hostilities. China's second-quarter GDP growth slowed to 4.3%, below forecasts, although June industrial and retail data exceeded expectations, leading to a firmer yuan. Asian stocks and U.S. stock futures showed gains ahead of Wednesday's trading.