Stocks Jump to Records but Retreat on Rate Cut Pessimism: July 15, 2025

Stocks jumped to fresh records on this morning’s cooler-than-expected core CPI print but have retreated since on renewed tariff worries. Similarly, interest rates plunged, but then climbed, as accelerating goods costs found under the hood of the report raised eyebrows. But the heavily weighted new and used automobile categories cooperated by posting deflationary figures, helping to curb the increases in other physical product segments, such as furniture, appliances, apparel and toys. Turning to Washington, President Trump is intensifying his calls for the Federal Reserve to reduce its benchmark, but fixed-income watchers and forecast traders alike have essentially taken July off of the table for a quarter-point trim and dropped September’s odds to nearly a coin-flip. Overall, headline inflation is at 2.7% and if it doesn’t drop to 2.5% or lower in the next few months, then there’s a real risk of the central bank extending its journey down the monetary policy stairs. Investors have turned from heavy buyers of equities to modest sellers as every sector of the space is being sold ex technology, which is getting a boost from the Commander in Chief’s measures to relax export rules on semiconductor juggernaut Nvidia. Treasuries, meanwhile, have also reversed with the yield curve ascending north in bear-flattening fashion in light of a wait-and-see Federal Reserve. Bitcoins and the commodity complex are also dropping in the afternoon, but the greenback and non-correlated forecast contracts are catching strong bids.

June Core Inflation Cooler Than Expected

Inflation accelerated marginally last month with the headline Consumer Price Index climbing 0.3% month over month (m/m) and 2.7% year over year (y/y). The m/m result picked up from 0.1% in May and matched the economist consensus expectation. Relative to June of last year, the gauge’s reading was hotter than the preceding month’s 2.4% print and was in-line with the consensus estimate. The core version, which excludes food and energy due to their volatile characteristics, increased 0.2% m/m and 2.9% y/y, lighter than the 0.3% and 3.0% projections and similar to April’s 0.1% and 2.8% results. Regarding the m/m metric, the gasoline category and the energy services group had the largest cost hikes with increases of 1% and 0.9%. Other categories that became more costly and the amount of the changes were as follows:

• Medical care services, 0.6%
• Food away from home, 0.4%
• Apparel, 0.4%
• Food, 0.3%
• Food at home, 0.3%
• Shelter, 0.2%
• Transportation services, 0.2%

The used cars and trucks group and the new vehicles category were they only major sectors to decline with prices falling 0.7% and 0.3%, respectively.

Time To Sneak In Rate Cut Was Earlier

Unfortunately, the opportunity to sneak in a rate cut was in the earlier months of this year when inflation was running in the low 2s. This morning’s publication adds credence to the belief that the Federal Reserve should wait and see, especially with the indicator nearing a 3-handle. But we’ve seen tariff-cost worries before, during President Trump 1.0, when the CPI would ascend close to 3% due to economic growth accelerating amidst levy risks only for it to return back to the 2s after some cross-border commerce turbulence, which at the time was focused on Beijing. Indeed, certain quarters between 2017 and 2019 featured GDP advancement figures well north of 4%. Much of the price pressures in this report were also to strong activity, which in itself, can support cost forces in light of elevated levels of demand that catch businesses by surprise, compelling heavier charges. The momentum is evident when you look at the performance of stocks, which investors just can’t get enough of as the profitability outlook over the next four years remains buoyant. 

International Roundup

UK Retail Growth Accelerates

Consumer outlays in the UK during the five-week period ended July 5 accelerated from May, with strong results for food purchases. Total retail sales climbed 3.1% y/y after climbing only 1% in the preceding month, according to the British Retail Consortium (BRC). Food sales climbed 4.1% while other items were up 2.2%.

The upward change in food sales, however, was partially driven by loftier prices while a soaring heat wave drove consumers to splurge on fans, air conditioners and summer clothing. Weather conditions also supported sales of sports and leisure equipment. Promotions on household items were additional tailwinds.

The BRC maintains that retailers face challenges. Tax reform has increased levies on larger retailers, creating the risk that some of the businesses may close, which could reduce foot traffic in local communities, making it harder for small shops to succeed. The organization is also concerned that high tax rates may be extended to smaller stores.

Australia Consumer Sentiment Improves Marginally

The Westpac Consumer Sentiment Index inched higher by 0.6% to 93.1 in July despite the Royal Bank of Australia deciding earlier this month to pause its easing campaign. The 100 level is the neutral border, with lower scores implying negative sentiment.

Within the gauge, households’ expectations for the economy during the next 12 months strengthened by 1.8% but fell 2.8% for the five-year period. Consumers are also concerned about the job market with a metric of expectations of increasing unemployment during the coming 12 months climbing 1.1% to 128.7. More encouragingly, the family finances vs a year ago metric climbed 5% from June to 79.2. For the coming 12 months it climbed only 2.6% to 101.4

China’s GDP Beats Estimates

China’s second-quarter and year-to-date gross domestic product (GDP) expanded more than expected. For the quarter ended in June, activity grew 1.1% quarter over quarter. The economist consensus called for a 0.9% advancement following the 1.2% gain in the first three months of the year.

On a y/y basis, GDP was up 5.2%, stronger than the consensus forecast for 5.1% but down slightly from 5.4% in the first three months of this year. At a time when China and the US are in a trade war, industrial production within the world’s-second largest economy was a bright spot, climbing 6.8% y/y up from 5.8% in May and above the economist consensus prediction of 5.6%. Retail sales, however, slowed. The 4.8% y/y gain missed the consensus estimate of 5.2% and decelerated from 6.4% in the preceding month. The home price print was another disappointing area. Despite moderating from the 3.5% decline in May, June’s dip of 3.2% pointed to continued slack in the residential market.