Markets Surge 160 30 Points on Lower Than Expected Inflation

The stock and crypto markets experienced a notable upward trend on Tuesday, July 5, following the release of mixed consumer inflation data from the U.S. This data release had a significant impact on market sentiment, leading to gains across various asset classes.

Futures tied to major indices such as the Nasdaq 100 and S&P 500 saw increases of 160 and 30 points, respectively. In the crypto market, Bitcoin (BTC) recovered from its initial losses, rising above $118,000. Other altcoins, including Ethereum (ETH) and Cardano (ADA), also saw their losses erased, contributing to the overall positive market sentiment.

The Bureau of Labor Statistics reported that core inflation, which excludes volatile food and energy prices, missed analysts’ estimates for the fifth consecutive month. Core CPI rose from 0.1% in May to 0.2% in June, falling short of the 0.3% forecast. The annualized figure increased from 2.8% to 2.9%, also below the expected rise to 3%. This data indicated that inflation was not as high as anticipated, which was seen as a positive sign for the markets.

The report also showed that headline consumer inflation rose from 2.4% to 2.7% on a year-over-year basis and from 0.1% to 0.3% month-over-month. This annual increase was in line with what analysts were expecting, providing further clarity on the inflationary trends.

The data pointed to a potential interest rate cut at the Federal Reserve’s September meeting. The 0.2% monthly core inflation figure was consistent with the Fed’s 2% target, suggesting that the central bank might ease monetary policy to support economic growth. This expectation led to a rise in stocks and crypto markets while bond yields fell, as investors anticipated lower interest rates.

The Federal Reserve has emphasized that it will remain data-dependent when determining the timing of rate cuts. Officials have also noted that external factors, such as tariffs, could influence inflation and push it further from the 2% goal. This data-dependent approach has been a key factor in shaping market expectations and investor behavior.

The cryptocurrency market is expected to perform well in the long term, as analysts anticipate the Federal Reserve will begin cutting interest rates later this year. The odds of a rate cut have increased significantly, with most users expecting two cuts this year. Major financial institutions have also forecasted multiple rate cuts, with some predicting as many as seven cuts in 2026.

Cryptocurrencies and other risk assets tend to perform well when the Fed is easing policy, as seen during the COVID-19 pandemic and again in 2024. The Fed slashed rates to zero during the pandemic and implemented two cuts last year, which supported market growth. The current rally is also driven by supply-demand dynamics, with Bitcoin and Ethereum ETF inflows and corporate treasury demand increasing, while token supply on exchanges continues to decline.