What’s going on here?
Euro zone bond yields stayed flat after July’s US consumer price data hinted at a potential 25 basis point Fed rate cut in September.
What does this mean?
US inflation showed a slight uptick, with the CPI increasing by 0.2% in July following a 0.1% dip in June. Annually, inflation edged down to 2.9% from 3.0%. According to a senior research strategist at Pepperstone, these figures likely won’t sway the Fed much but do confirm the ongoing drop in inflation. Germany’s 10-year bond yield stayed firm at 2.179%, stable from pre-data levels. Notably, the yield had dipped from a peak of 2.707% in May due to cooling inflation. Conversely, Germany’s two-year bond yield, more sensitive to ECB rate expectations, inched up 1.5 basis points to 2.354%.
Why should I care?
For markets: Steady as she goes.
The Fed’s expected 25 basis point rate cut reflects a stable yet cautious investor sentiment. Futures pricing suggests the decision is almost set for September, with a slight chance of a more aggressive 50 basis point cut. However, anticipating over 100 basis points of easing by year-end might be overly optimistic given the current economic stability.
The bigger picture: Global financial equilibrium.
While German and Italian bond yields stayed flat, revised French inflation figures put slight upward pressure on yields. Market stability, viewed as a positive sign, followed recent shocks in the US labor market and the unwinding of major trades. Investors welcomed stable bond yields and rising stocks after cooler inflation data, indicating a calm financial environment supporting global economic balance.
