Positive Reaction To Inflation Data May Lead To Strength On Wall Street

The major U.S. index futures are currently pointing to a higher open on Friday after the Commerce Department released readings on U.S. consumer price inflation that are said to be preferred by the Federal Reserve.

The report showed consumer prices increased in line with economist estimates in the month of July, while the annual rate of price growth was unexpectedly flat.

The Commerce Department said its personal consumption expenditures (PCE) price index rose by 0.2 percent in July after inching up by 0.1 percent in June. The modest increase matched expectations.

The core PCE price index, which excludes food and energy prices, also crept up by 0.2 percent in July. The uptick matched the increase seen in June as well as economist estimates.

Meanwhile, the report said the annual rates of growth by the PCE price index and the core PCE price index were both unchanged at 2.5 percent and 2.6 percent, respectively.

Economists had expected the year-over-year growth by both the PCE price index and the core PCE price index to tick up by 0.1 percentage point.

With the Fed almost universally expected to cut interest rates next month, the lack of acceleration in the yearly price growth may lead to optimism the central bank will lower rates at a faster pace.

Stocks turned in a strong performance throughout much of the trading day on Thursday but gave back ground in the latter part of the session. The major averages pulled back well off their highs of the session, with the Nasdaq and the S&P 500 slipping into negative territory.

The tech-heavy Nasdaq dipped 39.69 points or 0.2 percent to 17,516.43 and the S&P 500 edged down 0.22 points or less than a tenth of a percent to 5,591.96, while the Dow managed to remain in positive territory, climbing 243.63 points or 0.6 percent to a new record closing high of 41,335.05.

The early strength on Wall Street partly reflected a positive reaction to the latest U.S. economic data, including a Commerce Department report showing the U.S. economy unexpectedly grew by more than previously estimated in the second quarter.

The Commerce Department said the surge by gross domestic product in the second quarter was upwardly revised to 3.0 percent from the previously reported 2.8 percent. Economists had expected the pace of GDP growth to be unrevised.

With the upward revision, the pace of GDP growth in the second quarter showed an even faster acceleration compared to the 1.4 percent jump in the first quarter.

The report also showed modest downward revisions to the pace of consumer price growth during the second quarter.

“Downward revisions to inflation accompanying an upward revision to spending builds the case for a soft landing,” said Jeffrey Roach, Chief Economist for LPL Financial. “The key for the rest of this year will be the job market.”

He added, “Leading indicators for employment indicate services employment is starting to cool but the savings from lower mortgage debt servicing will continue to support household balance sheets.”

A separate report released by the Labor Department showed first-time claims for U.S. unemployment benefits edged slightly lower in the week ended August 24th.

The report said initial jobless claims slipped to 231,000, a decrease of 2,000 from the previous week’s revised level of 233,000.

Economists had expected jobless claims to come in unchanged compared to the 232,000 originally reported for the previous week.

Buying interest waned in the latter part of the session, however, as traders looked ahead to the release of the closely watched readings on consumer price inflation on Friday.

The downturn by the tech-heavy Nasdaq also came as shares of Nvidia (NVDA) saw further downside, with the AI darling plunging by 6.4 percent.

The steep drop by Nvidia came even though the company reported fiscal second quarter results that exceeded analyst expectations and forecast fiscal third quarter revenues above estimates.

“It looks like investors might not have taken the average of analyst forecasts to be the benchmark for Nvidia’s performance, instead they’ve taken the highest end of the estimate range to be the hurdle to clear,” said Dan Coatsworth, investment analyst at AJ Bell. “The top end was $0.71 earnings per share compared to the $0.68 earnings per share which the company achieved.”

“Another disappointment for investors was the pace of earnings growth,” he added. “Even though Nvidia is still making more money each quarter than the previous one, the growth rate is slowing. That has triggered alarm bells in the market that the AI gravy train might be losing power.”

While most of the major sectors ended the day showing only modest moves, significant strength remained visible among gold stocks.

Reflecting the strength in the sector, the NYSE Arca Gold Bugs Index climbed by 1.5 percent amid an increase by the price of the precious metal.

Networking, oil service and steel stocks also held on to notable gains, while computer hardware stocks came under pressure, dragging the NYSE Arca Computer Hardware Index down by 1.6 percent.

Commodity, Currency Markets

Crude oil futures are inching up $0.01 to $75.92 a barrel after jumping $1.39 to $75.91 a barrel on Thursday. Meanwhile, after climbing $22.50 to $2,560.30 an ounce in the previous session, gold futures are slipping $7.40 to $2,552.90 an ounce.

On the currency front, the U.S. dollar is trading at 145.72 yen versus the 144.99 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1063 compared to yesterday’s $1.1077.

Asia

Asian stocks advanced on Friday as strong U.S. GDP and labor market data hinted at a soft landing for the world’s largest economy.

The dollar held near a one-week high versus major peers and was on track to snap a five-week losing streak ahead of the release of Federal Reserve’s preferred inflation metric due later in the day, which is expected to show a slight uptick in price pressures in July.

The Federal Reserve is all but certain to cut interest rates by 25 basis points next month amid signs that inflation is heading down to the central bank’s goal.

Gold was marginally lower in Asian trading, while oil extended overnight gains following positive U.S. economic data and escalating supply disruptions in Libya.

China’s Shanghai Composite Index rose 0.8 percent to 2,842.21 and Hong Kong’s Hang Seng Index rallied 1.1 percent to 17,989.07 as investors scooped up electric vehicle makers like Li Auto and BYD after a recent sell-off.

Japanese markets ended at one-month highs as a weaker yen lifted export-related stocks. The Nikkei 225 Index settled 0.7 percent higher at 38,647.75, marking its highest level since July 31. The broader Topix Index gained 0.7 percent to close at 2,712.63.

Data released today showed Japanese industrial production rose by 2.8 percent sequentially in July, slightly below the expected 3.3 percent.

Tokyo CPI data for August showed further acceleration in inflation, while retail sales growth slowed to 2.6 percent year-on-year in July, down from 3.7 percent in June. The unemployment rate rose to 2.7 percent from 2.5 percent.

Seoul stocks advanced despite industrial production falling more than expected in July. The Kospi rose 0.5 percent to 2,674.31 after falling by more than 1 percent the previous day following an underwhelming result by AI chipmaker Nvidia.

Australian markets closed higher, led by industrials, gold miners and energy stocks. The benchmark S&P/ASX 200 Index climbed 0.6 percent to 8,091.90, while the broader All Ordinaries Index ended up 0.6 percent at 8,316.70.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index jumped 0.8 percent to 12,447.68.

Europe

European stocks are moving higher on Friday as traders digest a slew of regional data as well as the closely watched U.S. consumer price inflation data.

Eurozone inflation slowed sharply in August to its lowest level since mid-2021 due to falling energy costs, Eurostat data showed, adding impetus to calls for cuts to interest rates in the region. Consumer price growth slowed to 2.2 percent in August from 2.6 percent in July.

A separate set of data revealed that the seasonally adjusted unemployment rate in the euro area dropped by 0.2 percentage points to 6.4 percent in July.

French inflation cooled to a three-year low in August. INSEE statistics agency reported that French consumer prices rose 1.9 percent in August, down from 2.3 percent a month earlier and falling below the European Central Bank’s two-percent target for the first time since August 2021.

Meanwhile, the French economy grew at a slower pace than previously thought in the second quarter. GDP grew 0.2 percent in the April-to-June period compared to the first quarter.

Elsewhere, data from mortgage lender Nationwide Building Society showed U.K. house prices dropped for the first time in four months in August despite the fall in mortgage rates. House prices posted a monthly fall of 0.2 percent, reversing July’s 0.3 percent increase.

In a speech today, ECB Executive Board member Isabel Schnabel described the recent declines in inflation across parts of the Eurozone as “welcome developments” but cautioned that the “current level of headline inflation understates the challenges monetary policy is still facing.”

The pan European STOXX 600 is up 0.4 percent at 526.58, extending gains for a fourth straight session and beating its record peak of 525.59 hit in June.

While the French CAC 40 Index is up by 0.5 percent, the U.K.’s FTSE 100 Index and the German DAX Index are both up by 0.3 percent.

In corporate news, Ambu has plunged after the Danish medical equipment maker reported disappointing Q3 results in its Endoscopy Solutions segment.

Germany’s Thyssenkrupp is little changed after the Chairman and CEO of its steel division, along with five other board members, resigned due to conflicts with the parent company over the future direction of the business.

U.S. Economic Reports

A highly anticipated report released by the Commerce Department on Friday showed U.S. consumer prices increased in line with economist estimates in the month of July, while the annual rate of price growth was unexpectedly flat.

The Commerce Department said its personal consumption expenditures (PCE) price index rose by 0.2 percent in July after inching up by 0.1 percent in June. The modest increase matched expectations.

The core PCE price index, which excludes food and energy prices, also crept up by 0.2 percent in July. The uptick matched the increase seen in June as well as economist estimates.

Meanwhile, the report said the annual rates of growth by the PCE price index and the core PCE price index were both unchanged at 2.5 percent and 2.6 percent, respectively.

Economists had expected the year-over-year growth by both the PCE price index and the core PCE price index to tick up by 0.1 percentage point.

The readings on inflation, which are said to be preferred by the Federal Reserve, were included in the Commerce Department’s report on personal income and spending.

The report said personal income increased by 0.3 percent in July after rising by 0.2 percent in June. Economists had expected income to rise by another 0.2 percent.

The Commerce Department also said personal spending climbed by 0.5 percent in July after increasing by 0.3 percent in June, in line with economist estimates.

At 9:45 am ET, MNI Indicators is scheduled to release its report on Chicago-area business activity in the month of August. The Chicago business barometer is expected to inch up to 45.5 in August from 45.3 in July, but a reading below 50 would still indicate contraction.

The University of Michigan is scheduled to release its revised reading on consumer sentiment in the month of August at 10 am ET.

The consumer sentiment index for August is expected to be upwardly revised to 68.0 from the preliminary reading of 67.8, which was up from 66.4 in July.