Tamer-Than-Expected Inflation Data May Lead To Extended Rally On Wall Street

The major U.S. index futures are currently pointing to a higher open on Thursday, with stocks likely to see further upside following the rally seen over the course of the previous session.

The futures turned positive following the release of a highly anticipated Labor Department report showing consumer prices in the U.S. unexpectedly edged slightly lower in the month of June.

The Labor Department said its consumer price index slipped by 0.1 percent in June after coming in unchanged in May. Economists had expected consumer prices to inch up by 0.1 percent.

The unexpected dip by consumer prices came as another steep drop by gasoline prices more than offset a continued increase in shelter costs.

Excluding food and energy prices, core consumer prices crept up by 0.1 percent in June after rising by 0.2 percent in May. Core prices were expected to increase by another 0.2 percent.

The report also said the annual rate of consumer price growth slowed to 3.0 percent in June from 3.3 percent in May. Economists had expected the pace of price growth to decelerate to 3.1 percent.

The annual rate of core consumer price growth also slowed to 3.3 percent in June from 3.4 percent in May. The pace of growth was expected to remain unchanged.

The slowdowns by annual price growth are likely to add to optimism the Federal Reserve will lower interest rates as soon as its September meeting.

Following the lackluster performance seen during Tuesday’s session, stocks moved sharply higher over the course of the trading day on Wednesday. With the strong upward move, the S&P 500 closed above 5,600 for the first time ever.

The major averages saw further upside going into the close, ending the day near their highs of the session. The Nasdaq surged 218.16 points or 1.2 percent to 18,647.45, the Dow shot up 429.39 points or 1.1 percent to 39,721.36 and the S&P 500 jumped 56.93 points or 1.0 percent to 5,633.91.

The rally on Wall Street was partly due to strength among technology stocks, as reflected by the notable advance by the tech-heavy Nasdaq, which also reached a new record closing high.

The strength among tech stocks came after Taiwan Semiconductor (TSM) reported its second quarter sales surged much more than expected.

Shares of Taiwan Semiconductor, which supplies chips for AI giants like Nvidia (NVDA) and Apple (AAPL), spiked by 3.5 percent.

Stocks may also have benefitted from optimism about the outlook for interest rates ahead of the release of closely watched consumer price inflation data on Thursday.

During congressional testimony, Federal Reserve Chair Jerome Powell said more “good data” would strengthen the central bank’s confidence inflation is moving sustainably toward its 2 percent target and lead to a potential interest rate cut.

Powell also warned of the risk that leaving interest rates at an elevated level for too long could jeopardize economic growth.

“In light of the progress made both in lowering inflation and in cooling the labor market over the past two years, elevated inflation is not the only risk we face,” he said. “Reducing policy restraint too late or too little could unduly weaken economic activity and employment.”

Gold stocks showed a substantial move to the upside on day, driving the NYSE Arca Gold Bugs Index up by 2.9 percent to its best closing level in over two years. The rally by gold stocks came amid an increase by the price of the precious metal.

Significant strength was also visible among semiconductor stocks, as reflected by the 2.4 percent surge by the Philadelphia Semiconductor Index. The index reached a new record closing high.

Housing stocks also saw considerable strength over the course of the session, resulting in a 1.9 percent jumped by the Philadelphia Housing Sector Index.

Brokerage, biotechnology and pharmaceutical stocks also saw notable strength on the day, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are climbing $0.44 to $82.54 a barrel after advancing $0.69 to $82.10 a barrel on Wednesday. Meanwhile, after rising $11.80 to $2,379.70 an ounce in the previous session, gold futures are surging $28.80 to $2,408.50 an ounce.

On the currency front, the U.S. dollar is trading at 159.00 yen versus the 161.69 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0892 compared to yesterday’s $1.0830.

Asia

Asian stocks hit record highs on Thursday after Federal Reserve Chair Jerome Powell said the U.S. central bank will make interest rate decisions “when and as” they are needed, regardless of political factors.

Amid rising hopes for a September rate cut, investors awaited the release of the U.S. CPI report later in the day for further direction. Economists forecast annual U.S. CPI growth slowed to 3.1 percent in June from 3.3 percent in May.

Bonds and the dollar were broadly steady in Asian trading and gold ticked higher, while oil extended gains after OPEC maintained its demand forecast.

Chinese shares rallied ahead of next week’s political meetings of the Communist Party and the release of key economic indicators by the National Bureau of Statistics on July 15. The benchmark Shanghai Composite Index jumped 1.1 percent to 2,970.39.

Hong Kong’s Hang Seng Index surged 2.1 percent to 17,832.33, a day after China’s securities regulator announced more curbs on short selling.

Japanese markets reached new highs as investors pondered the prospect of U.S. interest rate cuts. The Nikkei 225 Index advanced 0.9 percent to 42,224.02, breaking past 42,000 for the first time ever. The broader Topix Index settled 0.7 percent higher at 2,929.17.

Fast Retailing shot up 2.3 percent after the owner of clothing brand Uniqlo raised its forecast for what would be its third consecutive year of record-high profits. Sony surged 3.6 percent and Sumco soared 5.9 percent.

Japan’s core machinery orders unexpectedly fell for a second straight month in May, government data showed today, raising some concerns over BOJ interest rate policy.

Seoul stocks rose notably as the Bank of Korea kept its benchmark interest rate steady at 3.5 percent for 12th time and signaled a dovish shift in its policy stance. The Kospi gained 0.8 percent to close at 2,891.35.

Australian markets hit a two-month high, led by mining, energy and financial stocks. The benchmark S&P/ASX 200 Index rose 0.9 percent to 7,889.60, while the broader All Ordinaries Index added 0.9 percent to finish at 8,133.40.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index jumped 1.0 percent to 12,058.29 as traders repriced in rate cut expectations.

Europe

European stocks have advanced on Thursday, with underlying sentiment supported by encouraging economic data from Germany and U.K. as well as expectations of a Federal Reserve rate cut in September.

Federal Reserve Chair Jerome Powell reiterated on Wednesday that the U.S. job market is cooling and that the central bank will act “when and as” needed regardless of political factors.

Closer to home, soft inflation data from Germany left the door open for another European Central Bank rate cut in September.

The consumer price index rose 2.2 percent in June, following May’s 3-month high of 2.4 percent. That was in line with the flash data published earlier. EU-harmonized inflation also softened to 2.5 percent from 2.48 percent, as estimated.

Elsewhere, data showed the U.K. economy rebounded at a faster-than-expected pace in May, adding to doubts about the possibility of an August rate cut by the Bank of England.

Real GDP grew 0.4 percent in May after showing no growth in April, the Office for National Statistics reported. The actual growth was double the expected 0.2 percent expansion.

While the U.K.’s FTSE 100 Index has risen by 0.3 percent, the French CAC 40 Index and the German DAX Index are both up by 0.6 percent.

In corporate news, Hugo Boss rose about 2 percent after Frasers Group increased its stake in the German fashion brand.

Fielmann surged 3.5 percent. The eyewear company forecast improved EBT margin for 2024 and 2025 after posting encouraging results for the first half.

Suedzucker slumped 4.3 percent after the sugar producer posted a 45 percent fall in first-quarter earnings.

French media group Vivendi rallied 2.2 percent after JP Morgan placed the stock on its “positive catalyst watch.

British water company Pennon soared 7.5 percent after naming an insider as its new CFO.

Peer Severn Trent rallied 3 percent after reporting a strong start to the year.

Oil services firm John Wood declined 1.2 percent after revenues fell 6 percent in the six months to 30 June.

Hays climbed 1.1 percent. The recruiter said it expects full-year profit to be around the bottom end of the market consensus range.

U.S. Economic Reports

Consumer prices in the U.S. unexpectedly edged slightly lower in the month of June, according to a highly anticipated report released by the Labor Department on Thursday.

The Labor Department said its consumer price index slipped by 0.1 percent in June after coming in unchanged in May. Economists had expected consumer prices to inch up by 0.1 percent.

Excluding food and energy prices, core consumer prices crept up by 0.1 percent in June after rising by 0.2 percent in May. Core prices were expected to increase by another 0.2 percent.

The report also said the annual rate of consumer price growth slowed to 3.0 percent in June from 3.3 percent in May. Economists had expected the pace of price growth to decelerate to 3.1 percent.

The annual rate of core consumer price growth also slowed to 3.3 percent in June from 3.4 percent in May. The pace of growth was expected to remain unchanged.

A separate report released by the Labor Department showed first-time claims for U.S. unemployment benefits fell by much more than expected in the week ended July 6th.

The report said initial jobless claims slid to 222,000, a decrease of 17,000 from the previous week’s revised level of 239,000.

Economists had expected jobless claims to edge down to 236,000 from the 238,000 originally reported for the previous week.

The Labor Department said the less volatile four-week moving average also dipped to 233,500, a decrease of 5,250 from the previous week’s revised average of 238,750.

At 11 am ET, the Treasury Department is scheduled to announce the details of this month’s auction of twenty-year bonds.

Atlanta Federal Reserve President Raphael Bostic is due to participate in a discussion on “Economic Inclusion” before the National Credit Union Administration Diversity, Equity, and Inclusion Summit at 11:30 am ET.

At 1 pm ET, the Treasury Department is scheduled to announce the results of this month’s auction of $22 billion worth of thirty-year bonds.

St. Louis Federal Reserve President Alberto Musalem is also due to participate in a fireside chat on the U.S. economy and monetary policy before the Little Rock Regional Chamber’s Power Up Little Rock event at 1 pm ET.