ASX 200 to rise + The Fed is set to pause as US inflation cools to 2-year lows

ASX 200 futures are trading 44 points higher, up 0.61% as of 8:30 am AEST.

S&P 500 SESSION CHART

MARKETS

• S&P 500 higher, finished near best levels and continues to climb 14-month highs thanks to a cooler-than-expected CPI print
• Participation was broad-based, led by Materials, Industrials, Discretionary and Tech
• US 2-year yield initially fell 8 bps to 4.49%, finished the session 9 bps higher at 4.68%
• Copper prices rallied 2.1% to 1-month high of US$3.8/lb on Chinese stimulus hopes
• WTI crude bounced 2.9% to US$69.3 but still down 4.4% over the last four sessions
• Discretionary positioning in stocks above neutral for first time since Feb(Reuters)
• Global Fund Managers afraid to miss out on AI frenzy (Bloomberg)
• Hedge funds get sucked into stock rally ahead of inflation data (Bloomberg)

STOCKS

• Goldman Sachs see investment banking revenues higher in upcoming quarters (FT)
• Oracle shares hit all-time high on quarterly earnings beat (Reuters)

ECONOMY

• US inflation slows, giving room for Fed to pause rate hikes (Bloomberg)
• UK unemployment falls and wage growth picks up (Bloomberg)
• Demand for Europe factory space rises 29% amid 'nearshoring' rush (FT)
• German inflation in falls to lowest level since March 2022 (Reuters)
• China's government agencies weigh broad range of stimulus proposals (Reuters)
• China cuts short-term interest rates to support economic recovery (Bloomberg)
• China credit data misses expectations, flags waning recovery (Bloomberg)
• NYC office occupancy breaks 50% for first time since pandemic (Bloomberg)
• Australia consumer confidence stabilises near recession lows (Bloomberg)
  
  

Deeper Dive: US Inflation

US inflation came in cooler than expected at both levels in May:

• Headline inflation was 4.0% vs. 4.1 expected (and 4.9% in the previous month)
• Core inflation was 5.3% in-line with expectations (and 5.5% in the previous month)

As for specific CPI components:

• Energy prices fell 3.6% month-on-month, which was the biggest drag on inflation
• Shelter remains sticky, up 0.6% month-on-month after rising 0.4% in April
• But at the year-on-year level, Shelter prices eased to 8.0% in May from 8.2% in March (after 25 consecutive increases)
• Used cars index also increased 4.4% month-on-month

Plus some interesting stats from Bespoke Invest:

• US inflation surged from 5.4% in September 2021 to a peak of 9.1% in June 2022
• The May print represents the "largest drop in the year-on-year headline ... since the Global Financial Crisis. Before that, you have to go back to the early 1980s."
• Marks the longest streak (11 months in a row) of decelerating inflation since 1921

Overall, inflation is cooling, especially at the headline and ex-shelter level. However, core inflation remains sticky and prints have been above 5.0% annualised over the last six months.

Still, the likelihood of a Fed pause jumped to 93.1% after the inflation print, according to CME's Fedwatch Tool.

Likewise, Goldman Sachs said "we view today's report as supportive of our call for a pause at the June FOMC meeting followed by a hike in July."