I stated that there will be no negative surprises in inflation in the USA, and even if there is a positive surprise, the stock market will go up. But I predicted that the items going up in the stock market would be small stocks rather than stocks like Nvidia and Tesla, which have been going fast so far. All of my predictions have come true, inflation has made a positive surprise and the markets are on the small caps side, not the Nasdaq side, which has brought us so far. Now, let's look at some details of the inflation data, the effects it creates on the market, and my predictions for the future.

Let's look at the summary data first, core inflation came to 0.1 month on month, the expectation was 0.2, a positive surprise. Therefore, we have decreased from 3.4 to 3.3 in the annual core. When we look at headline inflation, it came to -0.1 monthly. There is no inflation in America anymore, there is deflation in the headlines. This reduced annual inflation from 3.1% to 3.0% annually. There is a positive surprise on both sides, both in the headline and in the core. But there is another data set, it is about employment, and there are very interesting things there, I will have to interpret it a little. Jobless Claims 4 week average The average unemployment claims of the last 4 weeks decreased to 233000 from 238000. This week, unemployment applications decreased to 222 thousand. It was previously 239000, the expectation was 236000. In other words, there is no deterioration in employment that we expected. Of course, the FED may interpret this negatively. Because the FED says it will take action quickly if there is a deterioration in employment. On the other hand, there is such a decrease in inflation that God bless the FED. Because while inflation is falling so tightly and there is no deterioration in employment data, they will still have to reduce the interest rate. Because there is a wide gap between inflation and interest rates. It will be a different decision, but this is really a very positive situation for the markets. Because we are heading towards a place where America is winning the fight against inflation, at least based on these data, without going into recession. Of course, this will benefit small stocks the most. I'll get to that detail in a bit.

So, it is useful to look at how inflation fell on an item-by-item basis. Food inflation has reached 0.2, when you annualize it, it is 2.4. Everything is fine, eating at home 0.1 inflation, eating out 0.4. Both of them almost maintained their levels from last month. On the energy side, as we expected, there is a decrease in inflation, -0.2. Here on the commodities side there is a decrease of - 3.7. On the services side, -0.1. Let's talk about products, when we look outside of energy and food products, inflation here is at -0.1. Among this, we see plus 0.1 only in clothing. Prices of new vehicles have decreased. Prices of second-hand vehicles have decreased. There is a small increase in medical care products, 0.2, but when annualized it is 0.4, no problem. There is a serious decrease here compared to last month. Last month it was 1.3, and since its share in inflation was high, it had a significant positive contribution of 1.74 out of 100. There is a slight increase in alcoholic beverages. There is also a decrease in cigarette products compared to last month, it was 1.6 last month and 0.5 this month.

The real surprise comes from rents. We've talked a lot about rents here before, about how big the impact of rent is. Inflation in Rent of Primary Residence, that is, rental agreements, has decreased to 0.3 per month. This descent is still high but has a very significant impact. Because the effect of this rent clause on inflation is 7.6%. An even bigger item, I always say that they ask homeowners. Because homeowners say inflation is high. Its impact on inflation is 26.6%, and there we decreased from 0.4% to 0.3%. This is again super good news. They hadn't moved for a long time. There is a loosening here too, it will loosen further in the coming months. Medical services, that is, medical care services, were finally relaxed and reached 0.2. If you look at transport services - there is 0.5 inflation. Among these, automobile insurance has jumped again. If you remember, we were very happy last month because it went from 1.8 to -0.1. But it has started to rise again. Flight tickets are collapsed -5 this is a tremendous item. -5 means that people in America travel less, there is less demand for planes. So we're getting pretty strong signs here that the economy is slowing down.

So, what was the impact of this positive news on FED interest rate cut expectations? There is no significant change in expectations for July. The probability that the FED will cut interest rates has only increased from 5.2% to 7.2%. But when it comes to September, things change. While the expectation of a 25 basis point cut in September was 69.7%, it has now increased to 79.1%. The probability of two reductions, that is, a 50 basis point reduction, increased from 3.7% to 6.1%. When we look at November, there is a serious increase in discount expectations. The probability of a single discount of 25 basis points decreased from 50.7% to 43%, while the expectation of a discount of 2 discounts, i.e. 50 basis points, increased from 32.8% to 46.2%. In December, the expectation of 3 interest rate cuts decreased from 26.4% to 38.5%, and the expectation of 2 interest rate cuts decreased here because it shifted upwards. So now the markets are pricing in an interest rate cut of between 2.5 and 3 percent. This means 75 basis points. It is pleasing for the markets, but it is not equally pleasing for all markets.

The increase in technology stocks was extremely low at 0.09, compared to 0.06 in the S&P 500 and 0.05 in the Dow Jones. The rise is 2.32% in small stocks. Now it should be the turn of small stocks. Because small stocks have not been able to benefit from the rally since the beginning of the year. People were afraid of them. They were scared, wondering if they might have financial difficulties. They couldn't get anywhere, they are celebrating right now. In this context, I have IWM etf. He was excited, of course, he's doing well now. Again, of course, there is a significant decrease in interest rates. We also need to look at that. There is a 2.18% loss in American 10-year bonds. 2.86% in American 2-years. That's great, it also steepens the yield curve, which it does in a downward direction. This is very positive, I won't go into details, then maybe I'll try to explain it in another article. Things are going well here too.

Of course, it is also useful to look at crypto. Bitcoin is up 2.86%, ethereum is up 1.6%, so that's basically a positive message for them as well. But crypto has other troubles of its own right now. You know, in Bitcoin, Mt. Gox sales etc. but I think this is a positive development for bitcoin, especially in the long term. I think interest rate cuts will not bring much money to altcoins. Because the reduction in interest rates does not mean an instant abundance of money, and even if it becomes abundant, it is difficult for that money to come into altcoins. I think it will be more beneficial to Bitcoin. As a matter of fact, we are currently seeing an increase of 2.86% there. There are also more serious increases in some coins such as Shiba at the bottom.

All this shows that America has now defeated inflation. I point out that it has already been eaten for months. Some items resisted, car insurance, rents. When they broke this month, things got better. As you know, apart from the problems caused by the Houthis in Yemen in the coming months, the ships cannot come. That's why there is an increase in container prices. Apart from that, I do not see a serious inflationary effect. In this context, the FED must definitely reduce interest rates. There is a wide gap between the new inflation data and the FED interest rate. I wish they had a discount in July. They can be stubborn about this, so I was betting that they would announce a discount in July and September. Processes can be accelerated even further, it remains to be seen.

Unfortunately, a new CPI will not come from here until the July FED meeting, but other inflation data that the FED attaches great importance to, such as PCE and PPI, that is, producer price index and personal consumption index, will also come. Of course they are affiliated here. Therefore, there is a very high probability that they will be positive. It's been good for markets, but it looks like it's been better for smaller stocks. I predict that the market will stabilize a little in the coming days and the market rally will head towards sectors such as small stocks that have not participated in the rally for a long time, such as construction companies, industrial companies, banks, financial institutions.

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