Bond yields dip following news of lower inflation expectations

The New York Fed’s Survey of Consumer Expectations showed that in August Americans expected inflation to be 5.7% one year ahead. That is down from 6.2% in July and the lowest reading since October 2021.On the data front, investors will be watching the release of the U.S. year-on-year inflation and core inflation rates, and August’s month-on-month inflation rate.Markets are pricing in a 9 in 10 chance that the Federal Reserve will hike interest rates by 75 basis points for a third time next week, but the bonds markets are essentially signaling that markets do believe that the inflation trajectory is heading lower.Prices for energy, used cars and even food have gone down slightly. But there is a key difference between inflation in goods and in services, Cesar Perez Ruiz, chief investment officer at Pictet Wealth Management, told CNBC’s “Capital Connection” on Tuesday.Stock picks and investing trends from CNBC Pro:”(Decreasing) goods inflation will bring that inflation down, but what we really need to look for in the numbers is two things: one is the median CPI (consumer price index), and the other is the core CPI. Because that service inflation — rents, which continue to go higher, wages continuing to be higher, is the one that is going to determine the key thing we are all watching to keep that risk on: when and what is going to make the Fed pivot,” Ruiz said.The wealth management firm sees general economic sentiment continuing to wane, however, and predicts a mild U.S. recession and a contraction of 0.8% in GDP growth in 2023.For interest rate rises, “Our view is 75, 50, then 25 (basis points),” Ruiz added. “We don’t expect cuts next year, the key question is what’s going to make them pivot.”Meanwhile, Credit Suisse sees the Federal Reserve stopping its rate hikes sooner than expected because of falling inflation, which could prompt a market rally, the bank’s chief U.S. equity strategist told CNBC on Monday.”This is actually what’s being priced into the market broadly,” Jonathan Golub said. “Every one of us sees when we go to the gas station that the price of gasoline is down, and oil is down. We see it even with food. So, it really is showing up in the data already. And, that’s a really big potential positive.”Data on oil stocks, the IBD/TIPP Economic Optimism Index, which measures monthly consumer confidence, the monthly budget statement and a 30-year bond auction are also due Tuesday.

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