U.S. Producer Price Index Comes in Lower than Expected
Last Updated 4:15PM EST
Stock indices were mixed at the end of Thursday’s trading session. The S&P 500 and the Nasdaq 100 were down 0.07% and 0.65%, respectively. Meanwhile, the Dow Jones Industrial Average gained 0.08%
Furthermore, Treasury yields gained today, with the U.S. 10-Year Treasury yield increasing to 2.89%, up more than 10 basis points. In addition, the Two-Year Treasury yield also increased to 3.24%. This brings the spread between them to -35 basis points. As the yield curve remains inverted, fears of a recession continue to grow.
Compared to yesterday, the market is now pricing in a higher chance of a higher Fed Funds rate for the end of the year. In fact, the market’s expectations for a rate in the range of 3.75% to 4% increased to 19.5%, which is up from yesterday’s expectations of 16.7%. In addition, the market is now also assigning a 47.2% probability to a range of 3.5% to 3.75%. For reference, investors had assigned a 44.3% chance yesterday.
This rise in rate expectations comes despite yesterday’s lower-than-expected CPI report that showed inflation is starting to ease a bit. Indeed, on Thursday, even more evidence of softening inflation was released in the form of the U.S. Producer Price Index (PPI), which measures the change in the price of goods sold by manufacturers. The report came in at -0.5% month-over-month, better than the expected figure of 0.2%.
Nevertheless, one month of slightly better-than-expected inflation is unlikely to cause the Federal Reserve to become more dovish. In fact, members of the central bank have repeatedly said that they need to see multiple months that convincingly suggest inflation is coming down. As of right now, inflation still remains high, meaning that higher interest rates are likely on the way.
Prices at the Pump Continue to Decline
Last Updated 3:15PM EST
Stock indices are in the red heading into the final 45 minutes of today’s trading session. As of 3:15 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.01%, 0.1%, and 0.7%, respectively.
WTI crude oil is currently hovering around $94 per barrel, trading not too far away from its session high of $95.04 per barrel.
Consumers will be happy to see that gas prices across the country continue to fall. Indeed, the national average for regular gas fell below $4 per gallon. Today’s average price is $3.99 per gallon, down from yesterday’s reading of $4.01. This is significantly lower than the all-time high of $5.016 per gallon on June 14.
The highest prices can be found in Hawaii, where prices are substantially higher than the national average, at $5.39 per gallon. On the other hand, Texas is the state with the lowest gas prices, at $3.493 per gallon.
It’s likely that this downward trend will continue going forward as the Federal Reserve looks to raise interest rates to fight inflation. However, higher rates will destroy demand throughout the whole economy.
Initial Jobless Claims Come in Lower than Expected
Last Updated 12:00PM EST
Stock indices are mixed halfway into today’s trading session. As of 12:00 p.m. EST, the Nasdaq 100 is down 0.1%, while the S&P 500 and the Dow Jones Industrial Average are up 0.3% and 0.4%, respectively.
On Thursday, the Department of Labor released its Initial Jobless Claims report, which came in better than expected. In the past week, 262,000 people filed for unemployment insurance for the first time. Expectations were for 263,000 individuals.
When using the four-week average, initial jobless claims were 252,000, up from last week’s reading of 247,500. It’s worth noting that this figure has been steadily trending upwards each week since the start of April 2022.
In addition, Continuing Jobless Claims, which measures the number of unemployed people who qualify for unemployment insurance, came in at 1.428 million, worse than the forecast of 1.407 million and higher than last week’s 1.420 million.
Continuing Jobless Claims are currently sitting near their lowest levels since 1970. Relatively speaking, this suggests that individuals aren’t struggling to find other jobs after being laid off.
However, this figure has been trending upwards since the beginning of June. It will be interesting to see if this trend continues as interest rates rise while economic growth continues to slow down.
Stocks are in the Green to Start Thursday’s Trading Session
Last Updated 10:00AM EST
Stock indices are in the green 30 minutes into today’s trading session. As of 10:00 a.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 0.8%, 0.9%, and 1%, respectively.
WTI crude oil received a boost in price today after the International Energy Agency raised its demand outlook for the commodity. The reason for this increased forecast can be attributed to high natural gas prices, which have prompted some countries to switch to oil to meet their energy needs. The IEA raised its projections for demand by 380,000 barrels per day in 2022. As a result, WTI crude is trading at roughly $93 per barrel.
Meanwhile, bond yields are slightly higher, as the U.S. 10-Year Treasury yield is now hovering around 2.79%. This represents an increase of less than one basis point from the previous close.
Opposite movements can be seen with the Two-Year yield, which is now at 3.15%. Currently, the spread between the 10-Year and Two-Year U.S. Treasury yields is still negative, as it currently sits at -36 basis points.
Stock futures moved higher in the pre-market trading session as investors cheered the unexpected reduction in inflation.
Futures on the Dow Jones Industrial Average (DJIA) gained 0.32%, while those on the S&P 500 (SPX) inched 0.22% higher, as of 5.07 a.m. EST, Thursday. Meanwhile, the Nasdaq 100 (NDX) futures climbed 0.15%.
Sentiment during the early trading was also driven by solid quarterly numbers reported by Disney (DIS), which led to an almost 7% spike in its share price. Shares of audio technology firm Sonos (SONO), however, tumbled more than 19% after reporting weaker-than-expected quarterly earnings.
What Happened in the Stock Market on Wednesday?
Wednesday brought us the most awaited economic data of the month — July’s consumer price index (CPI) reading. The data revealed that inflation had significantly cooled from 9.1% in June to 8.5% in July. This number was even better than the 8.7% inflation that economists had expected.
This improvement, which was mostly driven by moderating oil prices, made investors speculate that the uncontrolled inflation that weighed heavily in the first half of 2022 has likely peaked, and is on the path to slow down.
Market sentiments were uplifted and the S&P 500, the Dow, and the Nasdaq closed 2.13%, 1.63%, and 2.85% higher, respectively.
The Federal Reserve’s September meeting is expected to weigh this CPI data to decide the tone of the next round of interest rate hikes.
Being very sensitive to interest rate hikes, technology stocks have been sharply volatile so far this year. July’s CPI data came as a breather to the tech sector, which led to Wednesday’s market rally. Meta Platforms (META), Netflix (NFLX), Nvidia (NVDA), and Advanced Micro Devices (AMD), soared 5.8%, 6.2%, 6%, and 4%, respectively.
However, investors are still anxious about a looming recession risk, as they await more insights into the situation through the upcoming earnings reports from Rivian (RIVN), Poshmark (POSH), and more.
More Positive Economic Data
Moreover, as an added positive, the government’s revenue for July increased 3% year-over-year, leading to a narrowing of the federal deficit by 30% year-over-year.
The Biden administration believes that focused efforts to reduce the budget deficit this year will help curb the spiraling inflation.
Another important economic data, the producer price index (PPI) reading for July, is also set to be released by the Bureau of Labor Statistics on Thursday. The consensus of economists expects July’s PPI to have cooled down to 10.4% from June’s 11.3%.
Geo-Political Events Affecting the U.S. Markets
On the political front, Wednesday also saw Chinese forces ceasing military actions around Taiwan. Nevertheless, China warned that they are capable of taking control of the independently ruled country. This may mean that a conflict between China and American partner Taiwan has been prevented for now, which is a breather for the U.S. tech sector.
However, news came in that Russia has joined forces with Iran’s military drones to bolster its position in the ongoing war with Ukraine. As two of the world’s leading oil producers team up, global commodities markets are expected to remain volatile.