Nasdaq makes 12-month high on more inflation news

Nasdaq led market’s higher, reaching a 12-month peak, as traders absorbed good news on inflation and looked forward to a peak in interest rates. Producer price index (PPI) inflation published today were better than expected, consistent with yesterday’s CPI inflation, suggesting decreasing inflationary pressures at the wholesale level. Weekly jobless claims fell, highlighting the continuing risk of a tight labor market.

Bottom-line: risk-on.

TODAY’S MAJOR NEWS

No change in a final two-hike rate forecast

Fed fund futures currently put 92% odds of another 25-basis-point rate hike later this month, but they only put 22% odds on another rate hike beyond that currently, with rates expected to start falling again at some point in the first quarter of next year. Of course, the market’s been wrong about that for the past year-and-a-half. The Fed currently puts emphasis on wage inflation as being the primary obstacle to hitting the 2% mandate and pivoting now would only be expected to further aggravate that problem. Wage inflation still presents a challenge to the Federal Reserve in closing that gap between 3% headline inflation and the Fed’s 2% mandate.

Positive start to earnings season

Upbeat reports from PepsiCo and Delta Airlines kicked off what looks like a better-than-expected earnings season Thursday, but the true test will be on Friday with results from Wall Street banks like JPMorgan, Citi, Wells Fargo, State Street, and BlackRock. So far, it appears that modest earnings expectations are being handily beaten by reported earnings – often bullish for those stocks.

Crypto issuance clarity benefits Ripple

Crypto stocks rebounded today after a judge's ruling that sales of Ripple's XRP cryptocurrency on public exchanges, rather than direct to investors, did not involve securities. The XRP token was up over 50% in 24 hours, also benefitting Ether, up 6%, and Bitcoin, up 2%. A US District Court judge in New York did rule, however, that Ripple's sale of XRP tokens to hedge funds and other sophisticated investors did qualify as a sale of unregistered securities. This dichotomy will benefit exchange-issued tokens but could still hurt those sold to unsophisticated retail investors in so-called ICO’s.

Producer price index (PPI) inflation better than expected

• PPI inflation rose 0.1% year-on-year in June, less than a forecast 0.5%, and down significantly from the 1.1% year-on-year in May
• PPI was up 0.1% month-on-month in June, a rebound from the 0.3% contraction last month
• Core PPI, ex food and energy, was up 2.4% year-on-year in June, less than a forecast 2.8%, and down from the 2.8% posted in May
• Core PPI was up 0.1% month-on-month, down from 0.2% growth the previous month

Weekly jobless claims worse than expected

• First-time claims for unemployment benefits fell to just 237,000 in the week ending July 8, below an expected 249,000
• The four-week moving average fell to 246,750 claims, down from 253,500 last week
• Continuing claims rose by 11,000 to 1.720 million in the week ending July 1
• The four-week moving average for continuing claims fell by 10,750 to 1.735 million

TODAY’S MAJOR MARKETS

Equity markets

• Markets rallied in morning trade, with the Nasdaq Composite resuming market leadership, up 1.2% in morning trade, with the Russell 2000 and S&P 500 up 0.8% and 0.6%, respectively
• Global markets also rallied, with the Nikkei 225, DAX and FTSE 100 up 1.5%, 0.7% and 0.3% respectively
• The VIX, Wall Street’s fear index, is again hovering around a 12-month low at 13.5

Currencies and Bonds

• The dollar index fell 0.6% against a basket of currencies at 99.9
• Sterling/dollar and Euro/dollar were up 1.0% and 0.7% respectively, while Yen/dollar fell 0.2%
• Bonds rallied strongly, with yields on 2- and 10-year Treasuries falling back to 4.64% and 3.76% respectively

Commodities

• Crude oil prices were up 0.3% to $76.0 per barrel
• Silver prices continued to rally, up 2.5% to $24.9 per ounce, while Gold was flat at $1,962 per ounce
• Grain and oilseed prices are mostly higher, led by surging soybean prices, spurred by expanded trading limits for Algo computers and a disappointing WASDE crop report from USDA

Analysis by Arlan Suderman, Chief Commodities Economist: Arlan.Suderman@StoneX.com

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com