Key Points
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Inflation seems to be cooling faster than previously expected.
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Tariffs are yet to drive up inflation, and the tariff pause has also dampened those prospects.
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The stock market is now optimistic, and the chances of a recession have gone down.
The stock market is up more this morning as the Consumer Price Index (CPI) report came in and showed that inflation is cooling down slightly faster than expected. CPI came in at 2.3% vs. the 2.4% forecast. Analysts had expected the downward trend in inflation to stop due to tariffs, but that hasn’t happened yet.
In fact, many expected that tariffs would cause a surge in inflation. The University of Michigan is often seen as a reliable benchmark for future inflation, and they have been bumping up their inflation expectations this year. Their expectations went up from 2.6% to 6.7%. But the inflation data has instead kept on trending down, and the market seems happy.
Here’s a market update as of 10:00 AM (ET) today.
- The S&P 500 is up 24.94 points, or 0.43%.
- The Nasdaq Composite is up 166.52 points, or 0.89%.
- The Dow Jones Industrial Average is down 143.98 points, or 0.34%.
Macros
- U.S. CPI year-over-year came in at 2.3% vs. the 2.4% forecast.
- U.S. CPI month-over-month came in at 0.2% vs. the 0.3% forecast.
- U.S. Core CPI year-over-year came in at 0.2% vs. the 0.3% forecast.
- U.S. Core CPI month-over-month came in at 0.2% vs. the 0.3% forecast.
Tariffs and Trade
The stock market has opened strongly this week due to the U.S. and China temporarily reducing tariffs on one another. China reduced its tariffs on U.S. goods to 10%, and the U.S. reduced tariffs on China to 30%. This is expected to lead to a trade deal with China during the pause. Even if that does not happen, Trump has said that tariffs on China will not return to the 145% level. He also announced $600 billion in investments from Saudi Arabia.
The tariff deal has also cooled down recession expectations. Goldman Sachs reduced their 12-month U.S. recession odds to 35% from 45%. It believes the Federal Reserve will deliver one interest rate cut vs. three cuts previously. Barclays also sees one interest rate cut in December.
According to the China Finance Ministry, “The substantial reduction in tariffs between China and the US meets the expectations of producers and consumers in both countries, and it is conducive to economic and trade exchanges between the two countries.”
The White House also said that the U.S. will be reducing the de minimis tariff on low-value packages from China and Hong Kong from 120% to 54%. The flat fee of $100 will remain.
According to Fed Governor Adriana Kugler, current tariff policies could still cause inflation to rise and growth to slow down. “Trade policies are evolving and are likely to continue shifting, even as recently as this morning. Still, they appear likely to generate significant economic effects even if tariffs stay close to the currently announced levels,” Kugler said.
Other Assets
- Gold Futures are up 0.3% to $3,239.
- Crude Oil Futures are up 1.7%.
- Natural Gas Futures are down 1.4%.
- Bitcoin is up 0.2% to $103,126.
The image featured at the top of this post is ©alengo / E+ via Getty Images.