In the latest market update, Wall Street stocks saw gains while the Dollar and Treasury yields experienced a decline. This shift was primarily influenced by new inflation data, which indicated a slowdown in the rise of U.S. consumer prices. Let’s delve into the details and understand the implications of these developments.
Insights from Inflation Data:
The Consumer Price Index (CPI) for the previous month showed a modest gain of 0.2%. This increase was mainly driven by rising gasoline prices and rents, which counterbalanced the decrease in prices of used motor vehicles. The year-on-year increase in CPI stood at 3.0% through June, marking a decrease from May’s 4.0% and the smallest year-on-year rise since March 2021.
The news of inflation slowdown resonated positively with Wall Street, as stocks soared. The Dow Jones Industrial Average witnessed a 0.41% rise, reaching 34,403.46. The S&P 500 gained 0.83% at 4,476.12, while the Nasdaq Composite climbed 1.14% to 13,917.37.
Dollar and Treasury Yields:
Following the inflation data, the Dollar Index experienced a decline of 1.1% and hovered near its lowest point in a year at $100.57. The USD/JPY pair traded near the 140 level, exhibiting a decrease of around 1.4%. Additionally, GBP/USD surged by 0.45%, hitting a 15-month high, as the Bank of England reassured markets about the UK’s ability to manage higher interest rates.
Furthermore, U.S. Treasury yields dropped, with the 10-year Treasury yield at 3.853%, indicating a decrease of 12.9 basis points. The two-year yield, which usually aligns with interest rate expectations, declined by 15.6 basis points to 4.740%.
Fed Hike Expectations and Bank of Canada:
Although markets have priced in a 95% chance of a 25-basis-point Fed hike later this month, there is skepticism regarding further rate hikes beyond that point. Meanwhile, investor focus will also turn towards the Bank of Canada, with analysts anticipating a second consecutive quarter-point rate hike at its upcoming meeting.
Earnings Season and Oil Prices:
In the U.S., the second quarter earnings season is commencing, with major banks such as JPMorgan, Citigroup, and Wells Fargo leading the way. Wall Street banks are expected to report increased profits due to rising interest payments offsetting a decline in dealmaking. However, some analysts caution that general earnings expectations may be too high.
Moreover, oil benchmark Brent futures breached the $80 per barrel mark for the first time since May, following the release of the U.S. CPI data. WTI crude rose by 0.83% to $75.45 per barrel, and Brent stood at $79.83, reflecting a 0.54% increase as of 5:15 GMT.
Other Market Movements:
Spot gold experienced a boost due to the decline in the dollar, rising by 1.3% to $1,957.35 per ounce. Meanwhile, major digital assets, including Bitcoin (BTC/USD), saw a downturn, with Bitcoin holding above the $30,000 level at $30,286, down 0.8% in the past 24 hours. Ethereum (ETH/USD) also witnessed a 0.2% decline, trading at $1,869 after touching a day high of $1,901.