US CPI in Line, Core Softer

• Rising tensions in the Middle East have again weighed on market sentiment, with the US launching a fresh wave of strikes against Iran near the Strait of Hormuz amid concerns Iran is delaying progress in negotiations.
• US headline CPI rose 0.5% in May, in line with expectations, lifting the annual rate to 4.2%, its highest since April 2023. Core inflation was softer at 0.2% for the month, below consensus, though at 2.9% over the year it remains well above the 2% target. While the print eased immediate inflation fears, futures still price just over one hike by calendar year end.
• The domestic rates outlook is becoming increasingly uncertain. The RBA cash futures curve has been flattening but still leans towards tightening, though less than a full hike is expected this cycle, NAB has become the first to call a reversal, predicting cuts on the back of low economic growth. That debate will stay in focus into next week’s RBA meeting as markets look for forward guidance.
• Looking ahead locally, Australian inflation expectations are due (previously 5.6% in May), while the ECB meets in Europe with a hike fully priced.