US Markets Surge as Producer Prices Ease, Fed Rate Cut Expected
The American markets closed higher on Tuesday, reaching a near two-week high as softer producer price data reinforced expectations of a rate cut from the Federal Reserve in September. Investors are now awaiting key consumer price data for July and retail sales figures on Thursday in hopes of aggressive rate cuts by the central bank.
American producer prices rose less than expected in July as an increase in goods costs was offset by cheaper services, indicating that inflation continued to ease. Over the past 12 months leading up to July, the producer price index increased by 2.2 percent after rising by 2.7 percent in June. The broad S&P 500 index rose by 1.7 percent, while the tech-heavy Nasdaq and Dow Jones Industrial Average climbed by 2.4 percent and 1.0 percent, respectively.
Commodities traded lower across the board yesterday. American crude oil futures fell on Tuesday as traders grew less anxious about the risk of a major war in the Middle East. This was due to Iran not yet acting on its threats to retaliate against Israel for the killing of a Hamas official in Tehran. Additionally, the Organization of the Petroleum Exporting Countries (OPEC) reduced its demand outlook for 2024 on Monday, despite the group and its allies, known as OPEC+, planning to increase production starting in October.
An escalation in the Middle East could threaten oil supplies from one of the leading oil-producing regions, but a major war seemed less likely as Iran suggested that renewed ceasefire negotiations with Hamas could prevent retaliatory actions. WTI crude oil fell by 1.7 dollars to $78.4 per barrel, while Brent crude dropped by 1.6 dollars to $80.7 per barrel.
Base metals also retreated yesterday. Lead was the biggest loser of the day, dropping by 2.3 percent, followed by zinc, which lost 2.2 percent. Copper fell by 0.6 percent, and tin decreased by 0.5 percent. Nickel and aluminum, on the other hand, advanced by 0.6 percent and 0.7 percent, respectively. Gold prices stabilized on Tuesday, nearing a record level reached in July, as the dollar and government bond yields declined following positive producer price data supporting hopes of a Fed rate cut in September. Gold prices fell by 4.8 dollars to $2,467.3 per ounce.
Among individual American stocks, tech giants Nvidia and Tesla climbed by 6.5 percent and 5.2 percent, respectively. While many software companies only rose in line with the rest of the market, some stood out. Meta, the parent company of Facebook, increased by 2.4 percent. Starbucks surged by 24.5 percent after appointing a new CEO.
The American ten-year Treasury yield decreased by 6 basis points to 3.85 percent.
Asian stocks are lower on Wednesday morning, and the dollar recovered from losses as soft American producer price data raised hopes of moderate consumer price inflation, lowering bond yields. Among the morning headlines was news that Japanese Prime Minister Fumio Kishida would resign as leader of the ruling party in September, ending a three-year period marked by rising prices and scandals. The Japanese Nikkei 225 index had declined by 0.2 percent at 07:30, while the Chinese Hang Seng and Shanghai indices had fallen by 0.7 percent and 0.5 percent, respectively.
On the Stockholm Stock Exchange, Troax will report at 12:30. Among the morning recommendations, ABG Sundal Collier raised the recommendation for Atlas Copco to buy from hold with a target price of 205 kronor. HSBC lowered H&M’s target price to 180 kronor (from 200) but reiterated a buy recommendation.
Wednesday is relatively busy on the macro front. The day began with New Zealand’s interest rate decision at 04:00, landing at 5.3 percent. At 08:00, the British and Swedish monthly consumer price indices for July will be released.