American inflation slows more than expected and becomes the real market mover of the day. In June the CPI rose by 3.5% on an annual basis, slowing down from 4.2% in May, while on a monthly basis it fell by 0.4%. It’s the largest monthly decline since April 2020 and comes largely thanks to cooling energy.
The core data, stripped of food and energy, offers an even more important signal for the Federal Reserve: +2.6% per year and zero change over the month. It is the number that the market watches most carefully, because it measures the most persistent part of inflation and can guide future rate choices.
For investors this is relaxing news. After days marked by rising oil, tensions on Hormuz and fears about prices, the CPI gives space to a less aggressive reading of the Fed. Wall Street in fact opened with the S&P 500 and Nasdaq rising, while the market reduces the fear of a new immediate tightening.
Energy and petrol, the relief may be temporary
The cooling of prices comes, however, from a fragile component. The energy index fell by 5.7% in June and petrol by 9.7%, contributing decisively to the slowdown in the CPI. On an annual basis, however, energy remains up by 15.7% and petrol by 26.7%.
The decline in June illustrates a phase preceding the new rise in oil prices and the return of tensions in the Gulf. If Brent remains close to the highs of recent weeks, part of the relief could reduce in the coming months, reopening the issue of energy inflation.
US banks and Italian half-yearly banks, the test passes from the margins
The CPI arrives on the same day as the accounts of the big Wall Street banks. JPMorgan reported a record profit of $21.2 billion, supported by investment banking and trading, while the market also looks to results from Goldman Sachs, Bank of America, Citigroup and Wells Fargo. The financial sector thus becomes the second great thermometer of the day.
For banks, the inflation data has a double reading. On the one hand, less aggressive rates reduce macroeconomic risk and can support credit, consumption and asset quality. On the other hand, a softer path in yields may compress some of the expectations on interest margins, after years in which the sector benefited from rising rates.
The same reading applies to Italy, where the market is preparing for the banking half-yearly reporting season. Investors will primarily look at interest margin, fees, funding, cost of risk, CET1, dividends and buybacks. The US CPI below expectations can help BTPs and general sentiment, but Italian banks will have to demonstrate that profitability and credit quality remain solid even in a phase of possible normalization of rates.
Piazza Affari between banks, utilities and energy
For Piazza Affari the signal is positive, but not uniform. BTPs can benefit from a more easing reading on rates, while utilities find relief if the cost of capital stops rising. They are companies that finance significant investments in networks, energy and infrastructure, so they remain very sensitive to movements in returns.
Banks, on the other hand, are entering a more selective phase. The market will not just look at earnings, but at the quality of earnings. Interest margin, commissions, collection and coverage of impaired loans will be the decisive variables to understand whether the sector can continue to support Piazza Affari.
Energy also remains under observation. The drop in petrol and energy in the American CPI favored the June data, but the new rise in oil can quickly change the picture. Eni and Saipem therefore remain linked to Brent, while the rest of the list looks mainly at rates, BTPs and growth expectations.
The CPI reopens space for the markets, but does not close the test
US inflation in June offers a breath of fresh air to the markets. The CPI at 3.5%, the monthly decline of 0.4% and the stable core data reduce the pressure on the Fed and improve the reading for stocks and bonds. For Italy, the first impact comes from BTPs, banks and interest-sensitive sectors.
The data, however, does not close the game. Energy, oil, American quarterly reports and Italian banking half-yearly reports will tell whether the slowdown in inflation is solid enough to support a more favorable phase for the markets. The day changes tone, but the test remains open.
This is why the US CPI is not just a macroeconomic statistic. It is the number that connects the Fed, Wall Street, BTP, Italian banks and savers. And today that number offers the markets a sign of relief.
