With CPI set for a 'historic drop', the market has FOMO'd into this print (and tomorrow's FOMC) with the headline print expected to tumble from +4.9% YoY to +4.1% YoY. However, The Fed's new favorite signal from The BLS is Core Services CPI Ex-Shelter, and that declined to +4.6% YoY - lowest since March 2022

Source: Bloomberg

The headline CPI was expected to rise 0.1% MoM (+4.1% YoY) and it did, but the YoY print dropped to 4.0%. That is the 11th straight monthly decline in the YoY print to the lowest since March 2021...

Source: Bloomberg

This is the longest streak of monthly headline CPI declines since 1921...

Gasoline was the biggest driver of the headline CPI's decline...

Core CPI was also expected to drop significantly (from 5.5% to 5.2% YoY), but it printed slightly hotter than expected at +5.3% YoY - still significantly elevated but at its lowest since Nov 2021...

Source: Bloomberg

Breaking down the drivers, Energy was the biggest deflationary impulse on headline...

The shelter index was the largest factor in the monthly increase in the index for all items less food and energy. The shelter index increased 0.6 percent over the month after rising 0.4 percent in April. The index for rent rose 0.5 percent in May, as did the index for owners’ equivalent rent. The index for lodging away from home increased 1.8 percent in May after decreasing 3.0 percent in April.

However, Shelter/Rent are down for the second straight month on a YoY basis...

Among the other indexes that rose in May was the index for used cars and trucks, which increased 4.4 percent, and the index for motor vehicle insurance which increased 2.0 percent. The indexes for apparel, personal care, and education also increased in May.

One silver lining is that egg prices continue to come down.

They tumbled 13.8% last month compared with April, that’s the biggest drop since January 1951!

And SuperCore inflation rose 0.24% MoM, up from +0.11% MoM in April...

Services inflation did slow modestly but remains near 40 year highs but goods inflation reaccelerated...

Source: Bloomberg

It appears M2 signaled that the 'stickiness' is over and a tsunami of deflation is about to hit...

Source: Bloomberg

And inflation continues to outpace wage gains for the 26th straight month (out of 28 months of Biden's term)...

Source: Bloomberg

Finally, here's what to expect from markets:

So, expect the buyers to be in charge for now (but will it last into tomorrow's FOMC?)