Michigan Sentiment: Soft-Landing Signal

Rising to 54.4, the first University of Michigan consumer sentiment index for July surpassed the 51.0 average and indicated a second consecutive monthly gain. One-year inflation expectations calmed, therefore supporting a...

Rising to 54.4, the first University of Michigan consumer sentiment index for July surpassed the 51.0 average and indicated a second consecutive monthly gain. One-year inflation expectations calmed, therefore supporting a somewhat risk-friendly tone and strengthening the theory that inflation worry is declining instead of reaccelerating—the most significant factor for macro markets. Market response was mixed but positive: the dollar was not very directional; gold moved toward session highs close to $4,000/oz; and risk assets received a slight raise from the mix of stronger consumer confidence and softer inflation expectations.

For traders, the most important lesson is that this is a somewhat favorable growth reading free of new inflationary pressure that helps to keep near-term Fed repricing limited while still providing a supportive background for risk assets and rates-sensitive industries.