SignalPlus Macro Research Report: CPI lower than expected, US securities and stocks experience a 'comprehensive' rebound.

Original Title: "SignalPlus Macro Research Report (20230713)"

Original Source: SignalPlus Chinese

In June, the core CPI increased by 0.157% month-on-month, lower than the market expectation of 0.3%. The year-on-year growth rate dropped from 5.3% in May to 4.8%. The core commodity prices rose by 0.1% month-on-month, while the prices of second-hand cars fell by 0.5%. Housing prices continued to slow down, with both main rent and equivalent rent of homeowners lower than expected. The unexpectedly weak core CPI was mainly due to non-housing services, which only increased by 0.06% month-on-month, while air ticket prices fell sharply by 8.1%.

Even though the market expectations have been lowered, the performance of CPI is undoubtedly still weak, causing Powell's preferred PCE indicator to drop sharply from 5.1% in February 2023 to 1.4% in June.

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The risk market naturally welcomes the weakness of CPI, and the bond yield fell by 15 basis points that day, while the SPX rose again by 0.75% driven by technology stocks and interest rate-sensitive stocks, showing a comprehensive rebound in risk sentiment. Wall Street brokerage reports pointed out that after the data was released, investors showed strong interest in establishing long fixed income positions (lower interest rates are better), because, as with other indicators (such as the rapid deceleration of M2 money supply growth and changes in the Case-Shiller house price index), the market expects CPI to continue to decline.

Due to the exceptionally strong employment data last month and the far greater-than-expected decline in CPI, the possibility of a US economic recession should continue to decline, and the possibility of US corporate profits (once again) exceeding expectations may be the final straw that causes the bear market to surrender.

The large-scale regional banking crisis has only recently passed, and the SPX index was able to reach a high point of about 4,500 points even when the terminal interest rate was close to 5.5%. Regardless of investors' inherent biases towards the Federal Reserve's rescue methods and economic concepts, the Federal Reserve deserves credit for the current situation.

The focus in the coming weeks will be on corporate profits, which will kick off this week with banks and the financial industry. The market will be focused on adjustments to loan loss provisions and forward-looking guidance on how rising interest rates and post-SVB regulatory costs will affect their investment portfolios.

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