US Stocks Mixed After CPI Data – Dow Down 1%
The major US indices had a mixed trading day yesterday after inflation data pushed out rate cut expectations, hitting the Dow, while positive trade deal news on China helped support tech sectors. The Dow closed down 0.98%, the S&P dropped 0.40%, and the Nasdaq recorded a 0.18% gain. Treasury yields pushed higher to hit their highest levels in six weeks, the 2-year up 4 basis points to 3.940% and the benchmark 10-year up 4.8 basis points to 4.481%. The dollar also punched higher against the majors, the DXY up 0.57% to 98.64. Oil prices dipped as supply concerns eased on hopes that a deal will be done before President Trump’s 50-day Russian sanction deadline, with Brent off 0.52% to $68.85 and WTI down 0.37% to $66.73. Gold also dropped on the back of the stronger greenback, down 0.56% to $3,323.87.
Dollar Back in Favour with Traders
The dollar has experienced a decent recovery over the first couple of weeks of July, gaining around 2.25% against a basket of majors, with the DXY rising from a low of 96.37 on July 1 to a high of 98.70 in trading yesterday. The latest US CPI print pushed it around 0.6% higher yesterday, as it increased by the most in five months, pushing back expectations of a Federal Reserve rate cut further. There is no expectation of a cut in July, but markets have been strongly pricing in a 25-basis-point cut in September; however, the odds of that occurring have now dropped to nearly a 50/50 call. The dollar hit a 15-week high against the yen last night, and another stronger inflation print tonight from the PPI numbers could spur that pair even higher, with the next target the 200-day moving average at 149.70. A clean break there could open the way for a move back to the March highs just above 151.00.
Inflation Data in Focus for Traders Again Today
Inflation numbers are in focus again today for traders after yesterday’s US CPI numbers hit markets. There is little on the calendar in the Asian session today, and markets are expected to start on the back foot after a mixed day on Wall Street; however, things do look set to liven up once the London session kicks off. The early focus for the session will be on UK markets, with the key CPI data due out. The headline year-on-year number is expected to show a 3.4% increase for the second month running, and a hotter print could see an expected August rate cut delayed by the Bank of England. The focus will again be on the US economy early in the New York session today with the PPI data due out, with both the headline and core month-on-month numbers expected to show a 0.2% increase, and anything significantly off that expectation is likely to lead to another volatile day on the markets. US crude oil inventories are out later in the day, with an expected drop of 1.8 million barrels priced into the market.
