In the news:
- US stock index futures steady with CPI data in sight (Investing)
- Wall Street ends higher as softer producer prices data boosts rate-cut bets (Reuters)
- Intel sells stake in chip designer Arm Holdings (Investing)
- ST Engineering’s 1HFY2024 earnings up 20% y-o-y to $336.5 mil, secures $6.1 bil in new contracts (Yahoo)
- Chipotle stock falls more than 7% after CEO departs for Starbucks (Yahoo)
Macro:
- US July PPI was softer than expected, and supported market expectations for the Fed to start cutting rates in September. Headline PPI rose 0.1% MoM, beneath the 0.2% expected and prior, and the YoY rose 2.2%, beneath the 2.3% forecast and down from the prior 2.7% (revised up from 2.6%). Core PPI was down to 0.0% MoM (exp. 0.2%, prev. 0.3% (revised down from 0.4%), with YoY rising 2.4%, down from 3.0% in June and beneath the 2.7% consensus.
- Fed's Bostic (2024 voter) said that the balance of risks in the economy is getting back to level, and on inflation noted the recent inflation data gives him more confident they can get back to 2%, but wants to see 'a little more' data. July CPI is out today and you can read the SaxoStrat preview at the link below and August CPI will be out on September 11, ahead of the Fed’s September 18 meeting.
- UK’s labor data gave mixed signals about the economy. While private sector pay growth cooled in June to 5.2% from 5.6% in May, it was still marginally above BOE’s 5.1% projection. There was a downside surprise in unemployment rate, which fell to 4.2% from 4.4% and against expectations of 4.5%. Employment surged by 97k, much stronger than the 3k expected although monthly jobless claims rose to the highest since 2009. UK’s inflation data will be on the radar today, and signs of sticky services inflation may keep another BOE rate cut off the table for now. Read here for more.
Macro events: RBNZ Announcement, UK Inflation (Jul), EZ GDP Flash (Q2), US CPI (Jul) – preview here.
Earnings: UBS, Cisco, Dole, Cardinal Healthcare, CAE
Equities:US stocks rallied on Tuesday, with the S&P 500 rising 1.6%, the Nasdaq 100 climbing 2.5%, and the Dow Jones edging up by 4.8 points. Cooler-than-expected producer inflation data fueled speculation of a potential larger interest rate cut by the Federal Reserve in September. The year-over-year PPI increase of 2.2% is close to the Fed's 2% inflation target, providing some market reassurance. The tech sector led the gains, with Nvidia up 6.4%, AMD rising 3.2%, and Qualcomm increasing by 4%. Consumer discretionary stocks also performed well, with Amazon up 2%, Tesla rising 5.3%, and Starbucks surging 24.5%. Shares of Sea Limited soared 12% on Tuesday after the company reported double-digit revenue growth across all its business segments for the second quarter.
Fixed income: Treasury futures climbed to session highs during the US morning session, extending gains after July PPI data came in below expectations. However, gains were limited by upward revisions to the previous month's metrics. The bid continued through the US afternoon session, driven by ongoing Middle-East tensions and rising concerns of a potential Iranian attack on Israel. Despite this, post-data price action remained subdued as traders awaited Wednesday’s key CPI report. Treasury yields had improved by up to 7.5 basis points across the front end of the curve in a bull-steepening move. Gains led by the front and belly of the curve resulted in a steeper 2s10s and 5s30s spread, which widened by 2.5 basis points and 3 basis points respectively, with both curves ending the session near their highs. Treasury yields ended near session lows, with the 10-year yield trading around 3.85% and the 2-year yield as low as 3.94%. Fed-dated OIS is pricing in approximately 107 basis points of rate cuts for the year, up from 100 basis points priced at Monday's close, and around 37 basis points of cut premium factored into the September policy meeting.
Commodities:WTI crude oil fell below $79 and Brent crude oil below $81, ending a five-day rally. Traders weighed a potential surplus and Middle East tensions. The IEA reported easing inventory declines, while OPEC cut demand forecasts due to weak Chinese demand. Gold declined 0.3% to settle at $2,465.16, while silver fell 0.45% to $27.85 per ounce, retreating from one-week highs. Investors are cautiously awaiting crucial US inflation figures this week, which will provide insights into the Federal Reserve’s monetary policy path. Arabica coffee futures fell over 3% to around $2.30 per pound as Brazil's coffee regions appeared to avoid significant damage from a recent cold snap. Corn futures dropped below $3.80 per bushel in August, hitting a four-year low due to weak demand and strong supply.
FX:The US dollar slumped after a cooler PPI report buoyed expectations of the Federal Reserve to start cutting rates in September. Activity currencies remained the top gainers among the G10 currencies, led by kiwi dollar which faces the central bank decision test today. Markets are pricing 65% odds of a cut from the Reserve Bank of New Zealand today, supported by declining immigration, rising unemployment and disinflation, and a delay may put the RBNZ behind the curve. Aussie dollar also rose to three-week highs against the US dollar, breaking above its 200-day moving average. Meanwhile, safe-havens Japanese yen and Swiss franc lagged but also gained against the US dollar as recession concerns have eased somewhat from last week.
For all macro, earnings, and dividend events check Saxo’scalendar.
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