Global Markets React to US Inflation Data and Surprise New Zealand Rate Cut

Morning Bid: US clears inflation decks, NZ cut surprises

A look at the day ahead in U.S. and global markets from Mike Dolan Feeding off impressive disinflation and a growing list of central bank interest rate cuts around the world, global stocks and bonds are rallying anew - with today's U.S. consumer price update set to clear the deck for Fed easing next month. Helped by a benign producer price readout and the VIX volatility gauge subsiding back below its 30-year mean, Wall Street indexes roared higher again on Tuesday and futures held the move ahead of the CPI report. With overall U.S. producer price inflation receded by more than forecast in July, the most eye-catching element of Tuesday's report was the biggest drop in the cost of services in nearly 1-1/2 years and clear signs of ebbing pricing power. As services inflation has irked the Federal Reserve for months, the latest development packs a punch - along with other elements of the PPI that feed the Fed-favored PCE gauge also behaving. With today's CPI expected to show modest 0.2% monthly gains at headline and 'core' levels, and multiple measures of inflation expectations dissipating again, futures seem comfortable in pricing as much as 107 basis points of Fed easing over the remainder of the year. Even though typically hawkish Atlanta Fed boss Raphael Bostic said on Tuesday he wants to see "a little more data" before supporting a cut, he will likely get that before September's meeting. Two-year Treasury yields have plunged back below 4% and 10-year yields have retreated as low as 3.84%. The dollar fell back, with the euro hitting its best levels of the year against the greenback as second-quarter GDP growth in the bloc came in at an expected 0.3%. With inflation on the wane and Fed cuts coming, the wider economy tracking almost 3% real growth and annual corporate profit growth running at close to 14%, it's a rosy picture for stocks and both the S&P500 and the Nasdaq added more than 1%. Adding to the global easing party on Wednesday, the usually hawkish Reserve Bank of New Zealand surprised with its first rate cut in more than four years and said inflation was heading back to its target. The kiwi dollar was jolted backward. The decision by one of the earliest adopters of inflation-targeting will resonate beyond NZ markets. And there was inflation cheer in Britain, too. Even though UK headline annual CPI inflation popped higher for the first time this year after two months bang on the 2% target, the rise to 2.2% was smaller than forecast and service sector inflation continued to ease. Sterling nudged lower after Tuesday's sharp rally. European and Asia stocks were generally higher on Wednesday - with Japan's Nikkei and yen shrugging off news that unpopular Prime Minister Fumio Kishida will step down as ruling party leader in September after three years in power. Once again, China's mainland stock indexes underperformed and closed almost 1% in the red and at their weakest in six months. Tuesday's poor data on economy-wide lending has unnerved investors once again. There was better news for newly revived tech stocks in the incoming earnings season. Apple supplier Foxconn beat expectations with a 6% rise in quarterly net profit on a boom in demand for AI servers and it stood by its forecast for full-year revenue to grow significantly. On the flip side, Bloomberg reported the U.S. Department of Justice is considering options that include breaking up Alphabet's Google - a week after a judge ruled the tech giant illegally monopolized the online search market. Shares of the California-based company were down about 1% ahead of today's bell. UBS, meantime, gained almost 2% as Switzerland's largest bank posted a net profit of $1.14 billion for the second quarter, comfortably surpassing analyst estimates. Key developments that should provide more direction to U.S. markets later on Wednesday: * US July consumer price index * US corporate earnings: Cisco Systems, Progressive, Cardinal Health

Smooth ride to rate cuts

The financial markets, which had been on a rollercoaster ride since mid-July, seem to have finally found their footing. Recent days have seen a rally, though they're still shy of their peak levels for the year. Investors are warming up to the idea of cheaper money on the horizon, thanks to potential rate cuts. Today's CPI data only reinforced their belief. Yesterday, stock markets were a sea of green. In the US, it was a lush, dark green, while Europe sported a more pastel shade. The Nasdaq 100, the go-to index for measuring market risk appetite, jumped 2.5%, marking its fourth consecutive day of gains. Investors are once again flocking to their favorite bets: Nvidia for AI, Eli Lilly for weight-loss drugs, and Tesla for... well, who really knows? The most profitable bet of the day was the Starbucks-Chipotle pair, with Starbucks up 24.5% and Chipotle down 7.5%. Brian Niccol, the man who turned Chipotle around, is now set to rescue Starbucks from its slump. One man's promotion is another man's demotion. The ongoing rally in US equities got a boost from a modest rise in US producer prices (PPI) in July, which was lower than expected. This joins a slew of below-expectation data, bolstering hopes for a Fed rate cut next month. Even Raphael Bostic, one of the Fed's staunchest hawks, struggled to argue against monetary easing (though he gave it a valiant effort). The favorable PPI reading had investors optimistic that today's US consumer price index (CPI) would also be tame. While the correlation between PPI and CPI isn't always clear, it was reasonable to expect a low CPI, and that's what happened. In July, consumer prices made a modest comeback, rising by 0.2%, after a brief dip of 0.1% in June, according to the Bureau of Labor Statistics. Over the past year, the Consumer Price Index (CPI) increased by 2.9%, down from a 3.0% rise in June. Economists had predicted this exact scenario. It's almost like they have a crystal ball -- or just really good data models. Inflation is now slowly inching towards the Federal Reserve's 2% target. Excluding the ever-volatile food and energy components, the core CPI rose by 0.2% in July, up from 0.1% in June. Over the past year, the core CPI increased by 3.2%, the smallest year-on-year rise since April 2021. All this supports the case for a September rate cut. This confidence is reflected in falling US bond yields and rising expectations for a rate cut in futures contracts. There's some debate over whether the Fed will cut rates by 25 or 50 basis points, but a 50-point cut seems unlikely unless the economy heats up or cools down dramatically. For now, Jerome Powell and his team are likely to keep their cards close to their chest. Futures on Wall Street went from red to pale green after the release of the data. Meanwhile, New Zealand's central bank cut its rates by 25 basis points overnight (from 5.50% to 5.25%), after considering a 50-point cut. This unexpected consideration sent the kiwi plummeting. New Zealand's central bank rarely makes global headlines, but it's seen as a bellwether for regional monetary policies, particularly Australia's. No offense to the central banks of Vanuatu or Fiji. In China, one problem replaces another. Recent data showed a contraction in bank lending to the real economy in July, the first time in 19 years. This is bad news for the Chinese economy but fuels speculation about stimulus measures. Same story, different day. In Japan, the Nikkei 225 is hovering near equilibrium. Prime Minister Fumio Kishida, who took office at the end of 2021, announced he will step down next month. His popularity has waned, and his party is mired in scandals. The Hang Seng lost 0.3%. The strong performance of American tech stocks is benefiting South Korea and Taiwan, which are up by about 1%. India (+0.1%) and Australia (+0.3%) are more cautious. European indices are bullish, driven by Wall Street's strong finish. Today's economic highlights: The main indicators on Wednesday include UK inflation figures, France's second estimate, and Eurozone industrial production in Europe. In the US, July inflation and DOE crude oil inventories will complete the picture. See the full agenda here. The dollar is worth EUR 0.9076 and GBP 0.7785. The ounce of gold is down to USD 2,473. Oil is slightly down, with North Sea Brent at USD 80.74 a barrel and US light crude WTI at USD 77.14. The yield on 10-year US debt is down to 3.86%. Bitcoin is trading at USD 61,000.

US CPI, UBS results, UK inflation - what's moving markets By Investing.com

Investing.com -- All eyes will be on the monthly U.S. consumer prices release later in the session as investors look for confirmation that the Federal Reserve will start cutting interest rates in September. U.K. inflation was relatively benign, while UBS impressed with its quarterly profit. It's the turn of consumer prices, due later Wednesday, to cement the start of the Federal Reserve's easing path next month, after Tuesday's tame U.S. producer prices release. The July producer price index increased a less-than-expected 0.1%, after rising 0.2% in June, the U.S. Labor Department said. In the 12 months through July, the PPI increased 2.2%, backing down from a 2.7% rise in June. This data resulted in the likelihood of a hefty 50 basis point cut in September rising to 53.5% from 50% a day earlier, according to CME's FedWatch Tool. The upcoming consumer price index release on Wednesday is expected to confirm generally benign inflationary pressures, which would allow the U.S. central bank to cut its policy rate from the 5.25%-5.50% range it has been in for more than a year. Federal Reserve Chair Jerome Powell has emphasized that favorable inflation data is crucial for a September rate cut. July CPI data is expected to show that that inflation continued to edge closer to the Fed's 2% annual target, with forecasts tipping annual core inflation to fall a tick to 3.2%, the lowest since April 2021. Headline CPI is expected to remain at 3.0%, on an annual basis. U.S. stock futures traded largely unchanged Wednesday, steadying after recent gains ahead of the release of the widely-watched monthly consumer prices report. By 04:00 ET (08:00 GMT), the Dow futures contract was 25 points, or 0.1%, higher, while S&P 500 futures slipped 1 point, and Nasdaq 100 futures fell 6 points, or 0.1%. The main Wall Street indices benefited from a broad rally on Tuesday after the release of benign producer prices data. The blue chip Dow Jones Industrial Average rose more than 400 points, or 1%, while the broad-based S&P 500 gained 1.7% and the tech-heavy Nasdaq Composite soared 2.4%. The July consumer price index is expected to show inflation pressures remain subdued enough to allow the Federal Reserve to cut interest rates in September. In the corporate sector, Intel (NASDAQ:INTC) sold its 1.18 million share stake in British chip firm Arm Holdings (NASDAQ:ARM) in the second quarter, a regulatory filing showed on Tuesday. The chipmaker said earlier this month that it would cut more than 15% of its workforce and suspend its dividend amid a pullback in spending on traditional data center semiconductors and a shift towards AI chips. The Wall Street Journal reported that chocolate giant Mars is looking to pay $83.50 for each share in packaged foods maker Kellanova (NYSE:K), a 12% premium to Tuesday's close, while valuing the firm at over $30 billion. UBS (SIX:UBSG) reported an impressive second-quarter performance Wednesday, with the Swiss banking giant detailing a net profit of $1.14 billion, comfortably surpassing forecasts. The net profit compared with the $528 million forecast in a company-provided poll of analysts for what were the bank's first results since UBS completed its formal legal merger with Credit Suisse (SIX:CSGN) in May. UBS CEO Sergio Ermotti said that the results reflected the "significant progress" the bank had made since closing the Credit Suisse acquisition. "We are well positioned to meet our financial targets and return to the levels of profitability we delivered before being asked to step in and stabilize Credit Suisse," he added, in a statement. "We are now entering the next phase of our integration, which will be critical to realize further substantial cost, capital, funding and tax benefits." UBS said the macroeconomic outlook was clouded by ongoing conflicts, geopolitical tensions and the upcoming U.S. elections. It expected these uncertainties to persist for the foreseeable future, and that they would likely lead to higher market volatility than in the first half of the year. The U.S. CPI release may be the day's main economic number [see above], but it's not the only inflation number of note as the U.K. also published its July consumer prices report. British consumer price inflation rose to 2.2% in July, rising above the Bank of England's 2% target after two months at that level, but still a sharp drop from the 41-year high of 11.1% seen in October 2022. However, this was a slightly smaller increase than the 2.3% figure expected, and annual services inflation, closely watched by the BoE, fell sharply to 5.2% in July from June's 5.7%. This followed data, released on Tuesday, showing annual wage growth excluding bonuses slowed to its lowest in nearly two years at 5.4%. The Bank of England cut its base rate earlier this month for the first time in over four years, but uncertainty remains about when or if the central bank will cut rates again this year. Crude prices rose Wednesday, buoyed by industry data showing a bigger-than-expected draw in U.S. stockpiles, while elevated geopolitical tensions in the Middle East added support. By 04:00 ET, the U.S. crude futures (WTI) climbed 0.6% to $78.80 a barrel, while the Brent contract rose 0.6% to $81.16 a barrel. Data from the American Petroleum Institute showed U.S. oil inventories shrank by 5.2 million barrels in the week to August 10, much more than expectations for a draw of 2 million barrels. The reading, if confirmed by official inventory data later in the day, showed that demand remained robust in the world's biggest fuel consumer, even as the travel-heavy summer season wound down. Crude markets have also been supported by elevated tensions in the Middle East amid fears that a bigger war in the Middle East will disrupt oil supplies from the crude-rich region. Iran has vowed a severe response to the killing of the Hamas leader late last month. Israel has neither confirmed nor denied its involvement but it is fighting in Gaza against Hamas after the group attacked Israel in October.