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April’s CPI data has landed softly this morning and bulls are in control.

Inflation readings were mostly as-expected, although a fairly dramatic miss in retail sales supports the idea that the US consumer is tentative to spend money in a difficult economy.

The odds of an interest rate cut happening before the election have marginally increased on the data, with markets now pricing the odds of at least 1 pre-election cut at 71%.

While stocks are ticking higher, the report is serving as a major catalyst for crypto markets as bitcoin leads the charge, gaining 4.3% over the last 24 hours.

The report kills the speculation that the Fed would be forced to imminently raise interest rates and provides cover for the Fed, Treasury and Congress to ease financial conditions, in-line with the rest of the world.

In addition to the CPI report, we’re covering a story out of China as the CCP appears ready to intervene in its domestic housing market by directly buying properties from distressed builders and banks.

Soft CPI Placates Markets: By The Numbers

WHAT HAPPENED:

• Consumer Price Index (CPI) Increase: April saw a slight easing in inflation with the CPI rising by 0.3% from March, less than the 0.4% anticipated. Year-over-year, the CPI rose by 3.4%, aligning with forecasts.

• Core Inflation: Excluding volatile items like food and energy, core inflation also increased by 0.3% monthly, reaching 3.6% annually, the lowest 12-month rate since April 2021.

• Market Reaction: Following the CPI data release, stock futures rallied and Treasury yields fell. Futures traders are now more confident about the Fed potentially cutting interest rates as early as September.

• Other Economic Indicators: Retail sales were flat in April, underperforming against an expected 0.4% increase. This suggests falling demand and a cautious consumer.

KEY DRIVERS:

• Shelter and Energy Prices: Increases in shelter costs (up 0.4% monthly and 5.5% annually) and energy (up 1.1% monthly and 2.6% annually) were significant contributors to the month's inflation.

• Decrease in Vehicle Prices: Both used and new vehicle prices dropped, down 1.4% and 0.4% respectively.

• Earnings vs. Inflation: Real earnings for workers fell by 0.2% in April when adjusted for inflation, with a marginal 12-month increase of only 0.5%.

WHY IT MATTERS:

• Consumer Purchasing Power: Flat retail sales and real earnings decline indicate that consumer purchasing power is being squeezed, likely affecting overall economic activity.

• Dovish Sentiment: Analysts perceive a "trifecta of dovish news" suggesting potential for a rate cut, driven by in-line CPI, disappointing retail sales, and moderate improvement in sectors like transportation and healthcare.

• Interest Rate Speculation: The market's reaction highlights a growing anticipation for a shift in Fed policy, possibly easing interest rates as soon as this summer.

CNBC

CCP To Buy Homes To Bail Out Housing Market

What Happened:

• China is exploring a new initiative where local governments would buy millions of unsold homes to address the severe slump in the real estate sector. This follows several smaller pilot programs and aims to provide a more significant impact by converting these properties into affordable housing.

• The plan involves state-owned enterprises purchasing these homes from distressed developers at large discounts, financed by loans from state banks.

• Details are still under discussion, with potential implementation taking months. It is one of the more radical steps taken by China to prop up its property market, which has seen a drastic 47% drop in home sales in the early part of the year.

Why It Matters:

• Economic Impact: The property market crisis in China is a major concern, directly affecting the broader economy. With home sales plummeting and unsold inventory at an eight-year high, this has increased unemployment risks for millions.

• Investment Requirements: Significant financial injections are needed, with estimates ranging from 1 to 2 trillion yuan ($277 billion). This initiative aims to provide immediate liquidity to developers and help absorb the excess housing inventory.

• Market Response: Post-announcement, there was a positive market reaction with a 5% increase in the CSI 300 Real Estate Index and slight upticks in the offshore yuan and Australian dollar.

• Risk of Increased Debt: While this plan could stimulate the housing market short-term, it also risks further increasing local government debt, which has already surged to 56% of GDP. The banking sector could also face additional strains due to the potential rise in bad loans and shrinking margins.

Bottom Line: Beijing’s latest gambit underscores the severity of the housing market woes and the lengths the government is willing to go to stabilize the situation. However, it also highlights the complex balance of injecting funds and managing increased debt levels, with the potential to exacerbate existing financial vulnerabilities.

Bloomberg

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The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.ll