US Stocks Flat After Inflation Jumps – Dollar Jumps 0.4%
The three major US stock indices all closed near flat yesterday after inflation data came in much stronger than expected, pulling back Fed rate cut hopes slightly. The Dow finished down just 0.02% at 44,911, the S&P edged up 0.03% to a new record high at 6,468, and the Nasdaq slipped 0.01% to 21,710. The dollar jumped higher against the majors last night after the PPI printed 0.7% higher than expected, with the DXY up 0.37% to 98.30. Treasury yields also popped after the data, the 2-year up 5.7 basis points to 3.732% and the 10-year up 5.2 basis points to 4.285%. Oil prices rallied back to a 1-week high as traders looked ahead slightly more pessimistically to today’s summit in Alaska between Presidents Trump and Putin, with Brent up 1.89% to $66.83 and WTI up 2.01% to $63.91 a barrel. Gold pulled back in line with the stronger dollar, down 0.61% to $3,334.79 an ounce.
PPI Throws a Spanner in the Rate Cut Works
Yesterday’s US PPI (Producer Price Index) data may have thrown a bit of a spanner in the works of market expectations for Fed interest rate cuts moving forward. Both the headline and the core numbers came in at +0.9% month-on-month, well above the expected +0.2% prints, indicating that inflation is alive and well in certain parts of the US economy and may justify the Fed’s ‘wait and see’ approach—much to the chagrin of the White House. The market is still strongly pricing in a 25-basis point cut for September; however, the pricing for another cut in October has dropped by about 10%. The dollar jumped on the data, and traders are now expecting to see further moves today, especially if US retail sales also point to more upward pressure.
Another Busy Calendar Day to Close Out the Week
Traders are expecting a busy day to close out the trading week today, with volatility remaining high until the New York close. The initial focus in the Asian day will be on Chinese markets, with a big data drop scheduled midway through the session. The highlights are likely to be Industrial Production (exp +6.0% y/y) and Retail Sales (exp +4.6% y/y), with traders expecting to see action in local markets around the event. Both French and Italian markets are closed today, which should lead to a reduction in liquidity in the European session; however, most traders are again expecting to see the biggest moves in the New York day. There is key data out which will form the initial focus for traders: Retail Sales (exp +0.6% m/m), Core Retail Sales (exp +0.3% m/m), and the Empire State Manufacturing Index (exp -1.2), followed later in the day by the preliminary University of Michigan Consumer Sentiment (exp 61.9) and Inflation Expectations (prev 4.5%), which should see moves in the market. However, the summit between Presidents Trump and Putin will likely cause the most volatility and will have traders glued to the newswires as the day progresses.
