Late night: after rising for 3 straight hours, the cheers suddenly stopped

—Last night, the market chose to trust the data first; over the next few days, it will have to answer another question: will it start trusting oil prices again?

Financial markets brought cheers once more:

- U.S. stocks rose across the board. The Dow Jones rose 0.02%, the S&P 500 rose 0.38%, and the Nasdaq rose 0.9%;

- Gold rebounded, briefly touching $4,100 during the day, but ultimately closed around $4,050;

- The U.S. dollar index fell sharply intraday, but regained nearly half of its losses by the close;

- Oil prices kept rising, with U.S. crude nearing the $80 level;

- U.S. Treasuries rebounded: the yield on the 10-year U.S. Treasury fell below the 4.60% level and closed at 4.58%.

First, once again the market displayed the classic “dollar down, everything up” pattern. Clearly, what the market is trading is “a decline in rate-hike expectations,” and the probability of a July rate hike has already dropped to 16%. The dollar broke below 101; the 10-year Treasury yield broke below 4.60%. The alarm has been downgraded to a warning—because there’s still some distance between the two and confirming a trend reversal.

Second, the June U.S. CPI data is already out—broadly below market expectations. Even core inflation came in unexpectedly below forecasts—this is the most satisfying inflation data in recent months, yet the market didn’t show the same excitement. The rise in U.S. stocks doesn’t match it: the Dow Jones is hardly up, and the Nasdaq’s gains are still under 1%.

One more detail to watch—gold surged and then pulled back. It pushed up to $4,100 at one point, then fell back to $4,050 at the close. After the CPI release, the gold price kept rising for three straight hours, and then reversed. The market isn’t blindly optimistic. On the one hand, the recent deterioration of the Middle East situation has taken away some of the relevance of the June data; on the other hand, Fed Chair Waller’s speech last night is hard to read as “dovish.” The market is still pricing roughly a 60% probability of a rate hike in September.

Many media outlets are likely to misread it. They will say: “The CPI cooled, and the Fed can relax.”

But that’s not it. Today Waller still emphasized: Inflation is a choice.

Third, the biggest change on Tuesday isn’t whether any single asset rose or fell, but that the market has returned to “data pricing,” and data has again become the market’s “primary explanatory variable.”

Over the next few days, you need to monitor three variables repeatedly:

Whether oil prices can truly hold above the $80 level, and whether energy risk continues to transmit into inflation;

Whether the yield on the 10-year U.S. Treasury returns to above 4.6%, to verify whether the bond market has changed its assessment;

Whether the U.S. dollar index ends its adjustment and strengthens again.

If all three move upward in sync, the optimism sparked by CPI may just be a brief pause. If their moves diverge, the market has a chance to keep running along the main line of “inflation cooling, and risk appetite rebounding.”

Last night wasn’t the endpoint—it was a new choice of direction.

Risk warning: This article analyzes only based on publicly available information and market data, for information exchange purposes only, and does not constitute any investment advice or any promise of returns. Financial markets involve risk; investment decisions must be made independently based on one’s own circumstances.