Inflation in the US steadied at 2.8% as the consumer price index, released on Wednesday, rose 2.4% in May from a year earlier.
Sanger stated the Fed is going to be data dependent, and confirmation through personal consumption expenditures (PCE)—which the Fed closely watches—is critical. He noted that there were a lot of good underlying stats within the CPI number that suggested things may be turning more benign.However, he added that the Fed will not move based on just one month’s data, and June alone won’t be enough for them to declare victory.
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He said that if a couple of months of confirming data is seen, then a 25 basis point rate cut becomes very likely. A 50 basis point cut is typically an emergency move, and a 100 basis point cut would only happen if the economy or employment is in deep trouble.
Their base case remains a 25-basis point cut, expected in September, although it could come a little earlier.Sanger believes that under Trump, the US may have secured a reasonably fair trade agreement with China regarding rare earth minerals. He pointed out that while the student ban appeared to be more of a last-minute tactic, there were other developments that suggested progress—such as the resumption of ethane exports. Although ethane isn’t strategically important to the U.S., it’s vital for China’s petrochemical plants, indicating a potential trade-off that helped resolve rare earth supply issues.
Despite these developments, Sanger remains cautious, noting that it’s too early to assume a full normalisation of US-China relations. He expects the gradual process of economic disentanglement between the two nations to continue, regardless of this deal.
On India, Sanger said the earnings story seems to be on an uptrend. He added that while some data like electricity and auto demand has not been as strong, they would like to see more bottom-up data indicating a full economic rebound.
He said the RBI’s 50 basis point rate cut is going to be helpful, and after meeting with a few financials, there was optimism about loan demand starting to pick up. On the economic front, the market animal spirits—which were in full force last year despite lackluster economic data—can now be supported by stronger numbers.
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