The S&P 500 Index ($SPX) (SPY) today is up +1.15%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.78%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.74%.
Stocks are higher after this morning’s PCE deflator report was mildly favorable and could encourage the Fed to be less hawkish. U.S. stocks have some carry-over support from today’s +1.2% rally in European stocks. Stocks are seeing support from today’s small -0.2 bp decline in the 10-year T-note yield. Stocks are also seeing support from today’s +0.5 point upward revision in the University of Michigan’s U.S. consumer sentiment index to a 4-month high.
The U.S. Supreme Court today struck down President Biden’s plan to forgive student debt, which is a negative factor for consumer spending through year-end.
Today’s May PCE deflator, the Fed’s preferred inflation measure, rose +0.1% m/m and +3.8% y/y, which was in line with market expectations. The May core PCE deflator rose +0.3% m/m, which was in line with market expectations, but the May core PCE deflator on a year-on-year basis rose by +4.6%, which was slightly weaker than market expectations of +4.7%.
The deflator report showed that inflation is going in the right direction, with the headline deflator easing to +3.8% y/y from April’s revised +4.3%, and the core deflator easing to +4.6% y/y from April’s +4.7%. Still, the Fed will remain worried about sticky core inflation, with the core deflator still at a very high +4.6% y/y, far above the Fed’s +2% inflation target.
May U.S. personal income rose +0.4% m/m, slightly stronger than expectations of +0.3%, although April was revised lower to +0.3% m/m from +0.4%. May U.S. personal spending rose by +0.1% m/m, slightly weaker than expectations of +0.2%, and April was revised lower to +0.6% m/m from +0.8%. May real personal spending was unchanged m/m after a revised +0.2% m/m increase in April.
The final-June University of Michigan U.S. consumer sentiment index was revised higher by +0.5 points to a 4-month high of 64.4, stronger than expectations for no revision. The revision left the index up by +5.2 points from May’s level of 59.2.
The markets are discounting the odds at 84% for a +25 bp rate hike at the next FOMC meeting on July 25-26. The markets are anticipating a peak funds rate of 5.42% by November, which indicates that the market is expecting an overall rate hike of +33 bp through November from the current effective federal funds rate of 5.07%.
China’s PMI reports overnight were roughly in line with market expectations but reinforced the view that China’s economy is losing steam after an initial post-Covid boom. China’s June manufacturing PMI rose +0.2 points to 49.0, which was in line with market expectations but remained below the expansion-contraction level of 50. China’s June non-manufacturing PMI fell -1.3 points to 53.2, weaker than market expectations for a decline to 53.5.
The June Eurozone CPI report of +0.3% m/m was in line with market expectations. The June CPI on a year-on-year basis eased to +5.5% y/y from May’s +6.1% y/y and was slightly weaker than market expectations of +5.6%. The June core CPI rose slightly to +5.4% y/y from May’s +5.3% but was slightly weaker than market expectations of +5.5% y/y.
The May Eurozone unemployment rate was unchanged from April at 6.5%, in line with market expectations.
Overseas stock markets are mixed. The Euro Stoxx 50 is up +1.24%. China’s Shanghai Composite index today closed +0.62%. Japan’s Nikkei Stock Index today closed down -0.14%.
Today’s stock movers…
Market breadth is highly positive today, with all but nine of the Nasdaq 100 components trading higher. Notable leaders include Nvidia (NVDA) with a gain of +4.0%, and Airbnb (ABNB) with a gain of +3.9%. Other leaders with gains of more than +2.0% include Netflix (NFLX), Meta Platforms (META), Tesla (TSLA), Amazon.com (AMZN), and Microsoft (MSFT).
Chip stocks are mostly trading on the upside today with gains of more than 2% in Nvidia (NVDA), Globalfoundaries (GFS), Microchip Technology (MCHP), AMD (AMD), and NXP Semiconductors (NXPI).
Nike (NKE) is down -2.0% after issuing disappointing earnings and guidance, although its sales figures were better than expected.
Carnival (CCL) is up +5.5% after an upgrade by Jefferies to buy from hold.
XPeng (XPEV) is up more than +9% after the company announced its new G6 electric SUV.
Citi initiated research coverage at a buy for Juniper Networks (JNPR), which is up +1.6%, and for Keysight Technologies (KEYS), which is up +1.3%. Citi initiated coverage at neutral for Cisco Systems (CSCO) (up +0.9%) and Arista Networks (ANET) (up +1.9%).
Accolade (ACCD) is up +9% after management issued stronger-than-expected guidance for Q2 revenue.
Across the markets…
September 10-year T-notes (ZNU23) today are up 3 ticks, and the 10-year T-note yield is down -0.2 bp at 3.837%. The 10-year T-note yield today has fluctuated near unchanged after the 10-year T-note yield soared by +15 bp on Thursday due to Fed Chair Powell’s mention of the possibility of more than two rate hikes. T-note prices today are seeing support from the generally favorable U.S. deflator report and the slightly weaker-than-expected U.S. personal spending report.
The dollar index (DXY00) today is down -0.54% on the slightly softer-than-expected U.S. deflator and personal spending reports. EUR/USD (^EURUSD) is up +0.52%. USD/JPY (^USDJPY) is down -0.35% as Japanese officials continue to threaten FX intervention to address the yen’s chronic weakness.
August gold (GCQ3) today is up +6.6 (+0.34%), and Sep silver (SIU23) is up +0.127 (+0.56%). Precious metals prices saw some support from the slightly dovish U.S. deflator report. Silver saw support from the rise in the U.S. consumer sentiment index to a 4-month high.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
