For a market plagued by fears about the Fed’s struggles to tame sky-high inflation, the July consumer price index brought a sigh of relief — with both core and overall measures coming in below forecasts. As a result, swaps are now suggesting a move of 50 basis points as more likely than a repeat of the 75-basis-point increases that officials have opted to implement at their past two meetings.

Comments on CPI:

• “Wow, finally the anecdotal evidence that inflation was easing has finally showed up in a mainstream inflation report. The Fed is rapidly losing its case for further tightening and this report reinforces for investors that either a new easing cycle has already begun or we are getting very close to one,” said Jim Paulsen, chief investment strategist at the Leuthold Group.
• “The weaker-than-expected CPI print suggests the Fed could adopt a more cautious pace of tightening going forward,” said Ellen Gaske, an economist at PGIM Fixed Income.
• “The market is now pricing in a 50 basis point move at the September meeting and equities are responding in kind. This data point will fuel talk of a policy pivot. But, for me, the issue really does boil down to the labor market. Wage growth is running red hot and absent a turn around in productivity, this will ultimately fuel higher prices,” Neil Dutta, head of economics at Renaissance Macro Research.
• “This is overall good news for risky assets. A lower growth rate of prices does not mean the end of inflation, and naturally the end of hawkish central banking. Inflation remains a situation that requires the Fed’s attention and more importantly the Fed’s measures,” wrote Florian Ielpo, head of macro at Lombard Odier Asset Management.
• “This is a step in the right direction but keep in mind we have many miles ahead of us before inflation normalizes. One month’s data point does not make a trend, however, so cautious optimism is likely the name of the game,” Mike Loewengart, managing director of investment strategy at E*Trade from Morgan Stanley.
• “With one more jobs report and CPI print on the docket ahead of the FOMC’s next scheduled session, it may be premature to say definitively how large of a rate hike is on the table for September, though as of now the debate would likely be over a 50 bps vs. 75 bps,” wrote Jason Pride, chief investment officer of Private Wealth at Glenmede.
• “The Fed will be looking at today’s number with a sigh of relief. But it is not enough to convince them to take their foot off the brakes. The Fed still has significantly further to tighten and the US economy ultimately cannot avoid its fate. Enjoy today and the next few weeks, it won’t last for too long,” said Seema Shah, chief global strategist at Principal Global Investors.
• “Both headline and core CPI inflation were surprisingly soft in July, but with recent wage and productivity data signaling prices pressures ahead, the Federal Reserve is unlikely to step back from the inflation fight just yet,” Bloomberg Economics’ Anna Wong wrote.

In fact, one danger of the stock-market rally is the possibility that would cause a relaxing in financial conditions that actually goes against the Fed’s goal of taming inflation. Former Treasury Secretary Lawrence Summers said last week he was concerned that a slowing in headline inflation in upcoming data would prompt the Fed to conclude its policies are working — when much more action is in fact needed.

In corporate news, Tesla Inc. climbed after Elon Musk offloaded $6.9 billion worth of stock in the electric-vehicle maker, saying he wanted to avoid a sudden sale in the event he’s forced to go ahead with his deal to acquire Twitter Inc.

What to watch this week:

• US PPI, initial jobless claims, Thursday
• San Francisco Fed President Mary Daly is interviewed on Bloomberg Television, Thursday
• Euro-area industrial production, Friday
• US University of Michigan consumer sentiment, Friday

Respected for decades for combining decent returns and relatively low volatility, the 60/40 portfolio has generated a 11.5% loss so far this year. Is it time to put the strategy to rest entirely or does it just need a tweak? Have your say in the anonymous MLIV Pulse survey.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 2% as of 11:07 a.m. New York time
• The Nasdaq 100 rose 2.6%
• The Dow Jones Industrial Average rose 1.8%
• The Stoxx Europe 600 rose 0.9%
• The MSCI World index rose 1.9%

Currencies

• The Bloomberg Dollar Spot Index fell 1.4%
• The euro rose 1.5% to $1.0363
• The British pound rose 1.6% to $1.2270
• The Japanese yen rose 2.2% to 132.11 per dollar

Bonds

• The yield on 10-year Treasuries declined four basis points to 2.74%
• Germany’s 10-year yield declined five basis points to 0.87%
• Britain’s 10-year yield declined three basis points to 1.94%

Commodities

• West Texas Intermediate crude fell 1.9% to $88.76 a barrel
• Gold futures rose 0.3% to $1,818.10 an ounce