Yields nearly flat following in-line CPI data. Treasury yields ended the day largely unchanged, with this morning’s CPI report failing to generate material rates movement as it printed as expected. The 2-year yield closed 1bp lower at 4.20%, while the 10-year yield closed nearly flat at 4.69%. Meanwhile, equities are now hovering near all-time highs as the tame inflation reading eased rate hike expectations, with the S&P 500 and NASDAQ closing 0.26% and 0.54% higher, respectively.
Tame CPI report takes pressure off Fed. Headline CPI increased 3.4% YoY in July, up 0.1% MoM from June and in line with expectations. Core CPI, which excludes food and energy, also came in as expected, rising 2.5% YoY and 0.2% MoM. Energy and gasoline prices were the primary source of relief, falling for a second consecutive month as average US gas prices remained near $4 a gallon, ticking higher during the month on renewed US-Iran tensions but below June levels. Grocery prices also fell for the first time since March, with lettuce prices dropping sharply following the cyclospora outbreak and ground beef falling 1.6%. Dan North, senior economist at Allianz Trade North America, noted that “this makes life for the Fed a little bit easier because now there’s less pressure for that hike that everybody was expecting. Inflation appears to be getting tamer.”
Conflicting Hormuz claims continue while US-Iran talks stall. Despite positive signals in recent days, diplomatic progress toward reopening the Strait of Hormuz appears to have stalled. Vessel traffic through the strait fell to a one-week low, with just eight ships passing through on Wednesday, compared to ~130 daily before the conflict. President Trump today claimed the US has “total control” of the strait and may “keep it.” The Persian Gulf Strait Authority, a recently established Iranian agency, rejected the declaration, stating “claims and repeated posts by US officials that the Strait of Hormuz is no longer blocked do not change the reality: the Strait of Hormuz remains blocked and will not be reopened until Iran’s conditions are accepted.”