US Stocks Edge Higher After CPI Data – Dow up 0.6%
US inflation data came in slightly lower than expected overnight, solidifying expectations of a rate cut from the FOMC in September, though the extent of the cut remains a topic of debate. The Dow gained 0.61%, closing above the 40,000 level once again. The S&P 500 added 0.38%, while the Nasdaq edged up slightly, weighed down by Alphabet’s performance. US Treasury yields had a mixed day, with the 2-year yield rising 1.2 basis points to 3.954%, while the 10-year yield fell 2.6 basis points to 3.828%. Currency markets remained relatively quiet as the data failed to prompt significant moves in the dollar. However, the New Zealand dollar dropped earlier in the day after the RBNZ cut rates. Oil prices continued to decline following an increase in US stockpiles, with Brent down 1.15% to $79.76, and WTI off 1.80% to $76.98 per barrel. Gold, which had been near historic levels, lost 0.78% on the day, closing the NY session at $2,447 an ounce.
CPI Disappoints Some Sectors
Last night’s US CPI data release was anticipated as the key risk event of the week but ultimately led to some disappointment across markets. Stock market bulls had hoped for weaker data to secure a 50-basis point cut from the Fed in September. However, with the headline month-on-month numbers meeting expectations and the year-on-year figure just 0.1% below the predicted 3% print, the likelihood of a 25-basis point cut has increased, with the market now pricing in a 64% chance. FX and commodity traders also anticipated more volatility from the data, but the muted response in most FX pairs and a drop in some commodity prices, particularly gold, reflected their disappointment. Gold, which had been approaching record levels prior to the data, took a hit after the release. With 34 days remaining before the Fed’s September meeting, there are still several US data points to consider before the FOMC makes its final decision.
More Volatility Expected for Traders Today
The macroeconomic calendar remains busy today, with investors anticipating plenty of market movements around key events. The Asian session is expected to be active, with early focus on the antipodes as the RBNZ Governor speaks, followed by key Australian employment data. Later in the day, China will release a series of updates, with Industrial Production and Retail Sales numbers being the highlights. In Europe, UK markets will likely see early action with the release of GDP data before attention shifts back to the US, where more tier 1 data, including Retail Sales numbers and the weekly Unemployment Claims update, are due.
