US Inflation Pressure Eases as Rates Fall Across the Curve

The US PPI data for July showed inflation pressure easing, with the headline measure flat and annual increase falling from 5.5% to 4.7%. Core measure rose 0.2%, taking the annual increase down to 4.2% from 4.7%. Cleveland Fed President Hammock, who dissented in favour of a hike at the last policy meeting, said she didn't have confidence that inflation would fall enough to return to the 2% target and rates were not meaningfully restricting the economy.

US rates fell across the curve, with the market pricing just 23bps of hikes this year. The Treasury successfully issued $25b of 30-year notes at a rate of 5.216%, reflecting the lift in rates since the previous auction. US equities are on track for another record close, supported by lower US rates.

Oil prices fell overnight, with Brent crude falling towards USD86 per barrel. UK Q2 GDP was in line with expectations at 0.4% q/q, and Bloomberg reported that Japan's PM Takaichi is supportive of a near-term rate hike by the BoJ, likely in either September or October.

Net currency movements remain insignificant in the current low-volatility environment, with the NZD reversing the decline that followed yesterday’s RBNZ survey of expectations. The market still prices a high chance of a September hike in New Zealand, while the following expected 25bps move is split between the October and December meetings.