Inflation Data Sparks Rush For Gold, Real Estate, Treasuries, Yen: Traders See September Rate Cut As Done Deal

The stars seem to be aligned for a reduction in U.S. interest rates in about two months, as the June inflation report released Thursday may provide policymakers with the confidence that annual consumer price changes are finally trending toward the Fed’s 2% target.

The inflation rate fell from 3.3% in May 2024 to 3% year-over-year in June 2024, the lowest since April 2021, according to the Bureau of Labor Statistics. The outcome fell short of the estimated 3.1%. On a month-over-month basis, the consumer basket contracted by 0.1%, marking the first negative reading since May 2020.

The data sparked a surge in rate cut bets, triggering a rally in interest-rate-sensitive assets.

Market-implied odds for a September rate cut increased from 71% to 91% following the inflation report, according to the CME Group‘s FedWatch tool. Additionally, the implied cuts by year-end rose to 65 basis points, suggesting between two and three rate cuts.

Investors Flock To Bonds, Low-Yield Currencies, Real Estate Stocks As Rate Cut Bets Rise

Yields on two-year Treasury notes tumbled 10 basis points to 4.51% at 11 a.m. ET, on track to hit the lowest since March. 11. Yields on long-dated Treasuries also fell markedly, sending the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) up by 1.2%.

The U.S. dollar index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP), fell 0.6%, on track for the worst session since mid-May.

The low-yielding Japanese yen, tracked through the Invesco CurrencyShares Japanese Yen Trust (NYSE:FXY), rose 1.8%. The dollar-yen pair dropped to 158.73, marking the second-worst session year-to-date, as traders speculated that a potential Bank of Japan intervention accelerated the move, although authorities did not officially confirm it.

Gold prices, as monitored through the SPDR Gold Trust (NYSE:GLD), rallied 1.9% to $2,415 per ounce, marking the best-performing session since mid-December 2023 and nearing all-time highs.

The broader stock market fell, with the SPDR S&P 500 ETF Trust (NYSE:SPY), falling 0.4%, and the tech-heavy Invesco QQQ Trust (NASDAQ:QQQ) tumbled 1.4%. Rate-sensitive equity sectors and industries reacted differently Thursday, with real estate stocks outperforming.

The Real Estate Select Sector SPDR Fund (NYSE:XLRE) rose 2.5% by 11 a.m. ET, outperforming all other S&P 500 sectors.

Among industries, homebuilders, as tracked by the SPDR Homebuilders ETF (NYSE:XHB) soared 5.4%, on track for their best day since mid-December 2023.

Chart: Rate-Sensitive Assets Rally After Cooler-Than-Expected June Inflation Report

Image: Benzinga Pro

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