Last Updated 4:05 PM EST
Stock indices finished today’s trading session in the green amid softer-than-expected inflation. The Nasdaq 100 (NDX), S&P 500 (SPX), and the Dow Jones Industrial Average (DJIA) gained 1.24%, 0.74%, and 0.25%, respectively. The healthcare sector (XLV) was the session’s laggard, as it fell 0.34%. Conversely, the technology sector (XLK) was the session’s leader, with a gain of 1.96%.
Furthermore, the U.S. 10-Year Treasury yield decreased to 3.87%. The Two-Year Treasury yield also decreased, as it hovers around 4.75%. This brings the spread between them to -88 basis points.
Compared to yesterday, the market is pricing in a higher chance of a lower Fed Funds rate for December 2023. In fact, the market’s expectations for a rate in the range of 5.5% to 5.75% decreased to 20.3% compared to yesterday’s expectations of 32.4%.
In addition, the market is now also assigning a 16.2% probability to a range of 5% to 5.25%. For reference, investors had assigned a 10.2% chance yesterday.
Last updated: 2:28 PM EST
Stocks remain positive so far in today’s trading session as the Nasdaq 100 (NDX), S&P 500 (SPX), and the Dow Jones Industrial Average (DJIA) are up 1.4%, 0.9%, and 0.4%, respectively, at the time of writing. In its most recent Beige Book report, the Federal Reserve stated that U.S. economic activity saw a slight increase since late May, though consumer spending presented a mixed bag.
The report highlighted slight to modest growth in economic activity across five districts, while two reported slight to modest declines. The rest noted no change. Among these, Boston, Richmond, Atlanta, and Minneapolis experienced some growth, while Philadelphia and San Francisco observed minor downturns.
Despite lingering supply chain issues, manufacturing activity made progress in half of the districts but decreased in the other half. Meanwhile, transportation activity was predominantly flat or down, attributed to high inventory levels and persistent labor shortages. Residential real estate demand stayed consistent despite rising mortgage rates, although limited inventories constrained sales.
Jobs grew modestly across most districts, but employers struggled to fill positions, particularly in health care, transportation, hospitality, and high-skilled roles. However, some districts did report an easing of these labor availability issues.
Last updated: 11:28 AM EST
At a panel discussion hosted by the National Bureau of Economic Research, Minneapolis Fed President Neel Kashkari spoke about the occasional clash between price stability and financial stability. He pointed out that such a conflict was witnessed in March when some American banks experienced difficulties due to poorly managed risk in the light of interest rates rising to combat inflation. Kashkari warned this kind of tension could resurface, with inflation being a key factor.
If inflation drops, mirroring current market expectations, this could ease pressures on bank balance sheets as policy rates decline, boosting asset prices. Conversely, if inflation stubbornly persists, policy rates might have to climb, which could depress asset prices and increase stress on banks. Kashkari suggested one proactive measure could be the Fed stress testing banks for a stagflation scenario, identifying the most vulnerable, and prompting these institutions to fortify their balance sheets.
On the topic of the Fed’s Quantitative Tightening, Kashkari expressed reluctance to modify the central bank’s balance sheet run-off rate. He commended the suggestion by Federal Reserve Vice Chair for Supervision Michael Barr to increase capital requirements for the largest banks by around 2% as a move towards greater resilience. Lastly, Kashkari emphasized that if high inflation does not come to pass and inflation drops as expected, the capital could then be distributed to shareholders.
Last updated: 9:32 AM EST
Stocks opened today’s trading in the green as the CPI report indicated that inflation cooled down in June. Indeed, the Nasdaq 100 (NDX), S&P 500 (SPX), and the Dow Jones Industrial Average (DJIA) are up 1.1%, 0.9%, and 0.7%, respectively, at the time of writing.
First published: 4:12AM EST
U.S. Futures are inching higher on Wednesday morning, with all eyes on the consumer price index (CPI) data due at 8:30 a.m. EST today. Futures on the Nasdaq 100 (NDX), S&P 500 (SPX), and the Dow Jones Industrial Average (DJIA) are up 0.24%, 0.13%, and 0.06%, respectively, at 4:00 a.m., EST, July 12.
The popularly followed inflation gauge is expected to show a 0.3% rise in June and a 3.1% increase for the twelve months. Meanwhile, core inflation (excluding food and gas) for June is expected to grow 0.3% from May and 5% on an annualized basis. Should the CPI data come in any different than expected, markets will react accordingly since the Fed’s monetary policy decision will be driven by the inflation numbers.
The CPI print will be followed by the release of the producer price index (PPI) data due at the same time, tomorrow, July 13. Following the two important inflation data sets, the Federal Reserve will enter the Blackout Period on July 15 and will be available for comments only after the FOMC meeting scheduled for July 25-26. In the meantime, traders will closely monitor comments from a few central bank officials slated to speak today to understand the health of the U.S. economy. The speakers include Fed Presidents from various states, namely, Tom Barkin from Richmond, Neel Kashkari from Minneapolis, Raphael Bostic from Atlanta, and Loretta Mester from Cleveland.
Turning to the earnings season, which kicks off tomorrow, beverage giant PepsiCo (PEP), airline bellwether Delta Airlines (DAL), and FMCG player Conagra Brands (CAG) will report tomorrow. On Friday, July 14, financial giants including JPMorgan Chase & Co. (JPM), Wells Fargo (WFC), Citigroup (C), BlackRock (BLK), and State Street (STT) will release their earnings. We expect some momentum in the stock market going ahead with the inflation and earnings season kicking in.
Elsewhere, European indices are trading in the green this morning, sort of building momentum for the U.S. inflation print. This morning, the Bank of England (BOE) released its Financial Stability Report, which shows that both businesses and households in the U.K. are in a better position than during the earlier financial crisis.
Moreover, the report stated that Britain’s banks are well capitalized to continue supporting households and businesses through the high-interest rate environment, as well as absorb losses. The U.K.’s inflation continues to remain sticky while the labor market remains resilient, posing a challenge to the BOE in its efforts to curb inflation.
Asia-Pacific Markets End Mixed
Asia-Pacific indices ended mixed on Wednesday in anticipation of key inflation data from the U.S. and India.
Hong Kong’s Hang Seng ended higher by 0.99%, while China’s Shanghai Composite and Shenzhen Component indexes ended lower by 0.78% and 0.99%, respectively.
At the same time, Japan’s Nikkei and Topix indices finished down by 0.81% and 0.67%, respectively. Japan’s wholesale inflation for May grew by 5.1% year-over-year, marking the slowest growth in the last six months.
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