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Inflation data triggers run on gold, real estate, treasuries and yen: Traders see September rate cut as a done deal – Invesco CurrencyShares Japanese Yen Trust (ARCA:FXY), SPDR Gold Trust (ARCA:GLD)

Inflation data triggers run on gold, real estate, treasuries and yen: Traders see September rate cut as a done deal – Invesco CurrencyShares Japanese Yen Trust (ARCA:FXY), SPDR Gold Trust (ARCA:GLD)

The stars appear to be aligning for a U.S. interest rate cut in about two months, as the June inflation report released on Thursday could give policymakers confidence that annual consumer price changes are finally approaching the Fed’s 2% target.

According to the Bureau of Labor Statistics, the inflation rate fell from 3.3% in May 2024 to 3% year-on-year in June 2024, the lowest since April 2021. The result was below the estimated 3.1%. On a monthly basis, the consumer basket shrank by 0.1%, marking the first negative reading since May 2020.

The data sparked a surge in rate cut bets and triggered a rally in interest rate-sensitive assets.

The market-implied odds of a rate cut in September rose from 71% to 91% after the inflation report, according to the CME GroupIn addition, implicit rate cuts rose to 65 basis points by year-end, suggesting two to three rate cuts.

Investors are flocking to bonds, low-yielding currencies and real estate stocks as speculation about rate cuts increases

Yields on two-year Treasuries fell 10 basis points to 4.51% at 11 a.m. ET, reaching their lowest level since March 11. Yields on long-dated Treasuries also fell sharply, which iShares 20+ Years Treasury Bond ETF TLT an increase of 1.2%.

The US dollar index (DXY), represented by the Invesco DB USD Index Bullish Fund ETF UUPfell 0.6% and is on track for its worst session since mid-May.

The low-interest Japanese yen, which was boosted by the Invesco CurrencyShares Japanese Yen Trust FXYrose 1.8%. The dollar-yen pair fell to 158.73, marking the second-worst session since the start of the year, as traders speculated that possible intervention by the Bank of Japan had accelerated the move, although authorities did not officially confirm this.

Gold prices, monitored by the SPDR Gold Trust GLDrecovered 1.9% to $2,415 an ounce, its best session since mid-December 2023 and approaching an all-time high.

The stock market as a whole fell, and the SPDR S&P 500 ETF Trust SPYwhich fell by 0.4%, and the technology-heavy Invesco QQQ Trust QQQ fell 1.4%. Interest rate-sensitive equity sectors and industries reacted differently on Thursday, with real estate stocks performing better.

The Property Select Sector SPDR Fund XLRE rose 2.5% by 11 a.m. ET, outperforming all other sectors of the S&P 500.

Among the sectors are the housing construction companies, as listed by the SPDR Homebuilders ETF XHB rose 5.4% and are on track for their best day since mid-December 2023.

Graphic: Interest-sensitive assets recover after weaker-than-expected inflation report for June

Image: Benzinga Pro

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