The core personal consumption expenditures index (core PCE), the Federal Reserve\u2019s preferred baseline for measuring inflation, cooled slightly to a 2.5% year-on-year (YoY) increase in June from 2.6% in May. On a month-on- month basis, core PCE picked up by 0.2%, meeting analyst expectations of a slight uptick from May\u2019s 0.1%. <\/p>\n\n\n\n
The latest report strengthens the Fed\u2019s case for a successful soft landing, following an advance GDP report last week showing that the US economy grew at a faster-than-expected annualized pace of 2.8% in the 2nd quarter (2Q) of 2024. These data points would lay the groundwork for a near-certain rate cut in September 2024.<\/p>\n\n\n\n
While it is now a near-certainty that the Fed will make the first cut on September, we are pretty sure that this will not be the last for the year. Most analysts are split whether the Fed will immediately follow the September cut with another one in November, or if the Committee will wait until December. <\/p>\n\n\n\n
The futures market, as measured by the CME Group\u2019s FedWatch tool, is pricing in an even more aggressive rate cut scenario of three successive 25bps cuts in September, November, and December, but we feel that this might be overly optimistic.<\/p>\n\n\n\n
Our View: <\/strong>The increasing likelihood that the easing cycle will start sooner rather than later should keep the market afloat this coming August “Ghost Month”, which is typically a gloomy month for the stock market. <\/p>\n\n\n\n The market\u2019s recent rally has somewhat priced this in, as a September cut has been considered as good as done since early July. However, as the probability of the Fed cutting rates in September approach 100%, we may see the BSP become more emboldened to move ahead of the Fed when they meet in August. <\/p>\n\n\n\n