PCE Inflation Report Takes Center Stage in North American Markets

North American Morning Briefing: PCE Inflation Report Tops Agenda

The Nasdaq's rebound is back on track with futures jumping in Friday's premarket. Futures for the Dow and S&P 500 were also on the rise, while bond yields were steady as investors awaited a key inflation report. The core PCE index data is predicted to show a slight slowdown as markets increasingly expect the Federal Reserve will cut interest rates in September, if not potentially at next week's meeting, Swissquote Bank said. "Even with the likelihood of a faster-than-desirable monthly reading, Fed officials have noted recently that inflation is trending in the right direction and that disinflation is broadening," Daiwa Capital Markets America said. "The path back to two percent is likely to be nonlinear, although broadly speaking inflation data for Q2 have been more positive than not." Premarket Movers Alphabet was up 0.8% after OpenAI announced it has been testing new artificial-intelligence search capabilities with a temporary prototype called SearchGPT. Coinbase's stock rose more than 4%, tracking a similar move in the price of bitcoin, which rose above $67,000. Coursera reported a jump in second-quarter revenue beating analysts' estimates. The stock rose 24%. Deckers Outdoor raised its profit outlook for fiscal 2025 after first-quarter earnings and revenue beat analysts' estimates. Shares climbed 11%. DexCom dropped 37% after it cut its fiscal-year sales forecast. Ford was rising 1.1% after shares of the auto maker tumbled on Thursday, the stock's worst daily percentage decline since it fell 25% on Nov. 19, 2008. Postmarket Movers Norfolk Southern posted earnings that rose from a year earlier and beat Wall Street estimates. The stock rose 6.8%. Olin lowered its outlook as a result of Hurricane Beryl disrupting operations at a Texas facility. Shares fell 10%. Zynex cut its outlook following worse-than-expected results. Shares fell 24%. Watch For: Personal Income and Outlays for June; University of Michigan Final Consumer Survey for July Today's Headlines/Must Reads - America Is Running Out of Generic Drugmakers. Another One Is on the Brink. - The New Threat to the Chip Industry: Worker Unrest - The Junk in Your Index Fund Is Costing You Big-Time Morgan Stanley is inclined to be positive on the dollar, helped by signs of economic weakening in the eurozone, but said expectations of more interest-rate cuts by the Fed pose a risk. The Fed's July meeting next week could be a catalyst for markets to price in additional rate cuts, in line with Morgan Stanley's forecast for seven consecutive reductions by mid-2025. "This...does therefore raise near-term downside risks for the dollar." Moves in the euro could be limited into the weekend and during the coming weeks, with a quiet August likely in store for the single currency, according to Monex. Although the yen has strengthened recently and reversed some of its excessive weakness against the dollar, it remains a long way from fair value, Citi Research, said. Citi estimates dollar-yen fair value at around 145. Citi noted the dollar has now broken below the 100-day moving average against the yen, which last week was acting as resistance. Speculation of a possible Bank of Japan rate increase at next week's meeting has helped lift the yen with markets pricing in a near 70% probability of a 10 basis-point hike. Energy: Oil was headed for a third weekly loss amid worries over the demand outlook in top importer China and broader risk-off sentiment across commodities this week. "China's apparent oil demand fell 8.1% on year to 13.66 million barrels a day in June," ANZ Research said. "The weakness is likely driven by gasoline and diesel, as rising new energy and autonomous driving vehicles become more popular." BMI said the prospect of softening global demand and the return of some OPEC+ barrels into the market later this year could also be weighing on prices. Metals: Gold prices rose but were on track for a modest weekly loss amid some profit taking and broader negative sentiment across commodities this week. TODAY'S TOP HEADLINES Apple's iPhone Lost More Ground in China in Second Quarter Apple's performance in China's smartphone market weakened further in the second quarter, hurt by rising popularity of local brands, preliminary data from a trio of industry trackers showed. Apple fell out of a ranking of the top five shippers of smartphones in China, according to separate reports by Canalys and International Data Corp., while Counterpoint Research estimated that Apple's market share by sales contracted. EssilorLuxottica Shares Climb After Eyewear Giant Draws Big Tech Interest EssilorLuxottica shares rose after the eyewear giant said Google and other big technology companies showed interest in exploring partnerships after its tie-up with Meta Platforms to make Ray-Ban smart glasses. The Ray-Ban maker is aware of Meta's intention to take a stake, but any share purchases would have to be carried out on the market, EssilorLuxottica Chief Executive Francesco Milleri said during a call with analysts. The remarks came after The Wall Street Journal reported last week that Meta was in talks to buy a stake of about 5% in EssilorLuxottica. Mercedes-Benz Lowers Margin Goal for Cars Division After Earnings Drop Mercedes-Benz Group lowered the ceiling for a key profitability target and flagged a tough Chinese market and trade tensions, but predicted a sunnier second half of the year. The German luxury-car maker said Friday that second-quarter net profit and revenue fell on year for the group after fewer sales and a drop in more profitable top-end vehicles. While revenue trailed forecasts, net profit rose above them. 'Boomer Candy' Funds Are Hot. The Taxes Are Not. Investors are pouring dollars into exchange-traded funds that offer a dreamy combination of stock exposure and fat income payouts as high as 12%. But next year they could wake up to a hard reality-tax bills that are confusing or higher than expected. These hot offerings are known as covered-call or derivative-income exchange-traded funds. Funds in this category recently held $87 billion as of July 17 compared with $8 billion at the end of 2020, according to FactSet. The number of funds in the group rose to 93 from 14 over the same period. Barack Obama and Michelle Obama Endorse Kamala Harris for President WASHINGTON-Former President Barack Obama and Michelle Obama endorsed Kamala Harris's presidential bid Friday, lending their support in the most notable sign yet of the vice president's rapid consolidation of the Democratic Party. The endorsement from the Obamas came at the end of Harris's first week since becoming the party's expected nominee in the aftermath of President Biden's decision to withdraw from the race against his GOP rival former President Donald Trump. Sabotage Hits France's Rail Lines as Olympics Begin PARIS-France's rail network was the target of a massive act of sabotage Friday, the day of the opening ceremony of the Olympic Games, officials said, bringing service on several high-speed rail lines to a halt in outages that are expected to last for days. Officials said fires were set at around 4 a.m. local time at several places around the country's rail network. The damage is disrupting service on the lines which bring traffic to Paris from the north, the southwest and east. In some spots, cables were cut and then burned, requiring laborious repairs. American Hotel Income Properties REIT LP Announces Passing of Chair W. Michael Murphy Aurora Cannabis Receives Expanded Cultivation and Unique Research Licenses for German Facility Canfor Corp 2Q Loss/Shr C$1.61; 2Q Adj Loss/Shr C$1.42; Loss C$191.1M; 2Q Sales C$1.38B Canfor Pulp: Supply Stabilizes Following Disruptions in First and Second Quarters, and New Hardwood Capacity in China and Brazil Is Projected to Come Online; On Demand Side, Purchasing Activity During 3Q Projected to Dampen Global Softwood Kraft Pulp Market Conditions Anticipated to Soften Through 3Q as Global Softwood Pulp Supply Stabilizes; Traditionally Slower Summer Period Is Forecast to Combine With Reduced Demand for Paper Products, Particularly in China, Further Weakening Pulp Demand; No Major Maintenance Outages Are Planned for the 3Q; 2Q Loss/Shr C$0.10; 2Q Loss C$6.3M; 2Q Sales C$220M Hammond Power 2Q EPS C$1.98; 2Q Sales C$197M Headwater Exploration 2Q EPS C$0.10; Headwater Exploration 2Q Net C$53.9M MEG Energy Declares Initial Dividend of C$0.10; 2Q FFO C$1.30/Shr Source Energy Services Partners With Trican Well Service to Develop Terminal in Taylor, British Columbia Expected Major Events for Friday 05:00/JPN: May Indexes of Business Conditions - Revision 14:00/US: Jul University of Michigan Survey of Consumers - final All times in GMT. Powered by Kantar Media and Dow Jones. AllianceBernstein Holding LP (AB) is expected to report $0.59 for 2Q. Arbor Realty Trust Inc (ABR) is expected to report $0.34 for 2Q. Bank of the James Financial Group Inc (BOTJ) is expected to report for 2Q. Barnes Group Inc (B) is expected to report $0.32 for 2Q. Bogota Financial Corp (BSBK) is expected to report for 2Q. Booz Allen Hamilton Holding Corp (BAH) is expected to report $1.45 for 1Q. Bristol Myers Squibb Co (BMY) is expected to report $0.96 for 2Q.

All Eyes on PCE

Investors are looking forward to the personal-consumption expenditures price index, which will be released at 8:30 a.m. GDP data out Thursday signaled that economic growth accelerated as consumers increased their spending, businesses invested more in equipment and stocked inventories, and inflation cooled. Meanwhile, orders for durable goods in June noted the sharpest drop since the pandemic. Elsewhere, the Bank of Russia lifted its policy rate for the first time this year and indicated it is likely to hike again. Surprise interest-rate cuts by China's central bank reflect Beijing's willingness to boost economic growth. And the U.K.'s financial regulator fined an arm of Coinbase. Read on for this news and more. Top News U.S. Economy Grew a Robust 2.8% in Second Quarter Gross domestic product-the value of all goods and services produced in the U.S., adjusted for inflation and seasonality- rose at an annual rate of 2.8% for April through June, the Commerce Department said. That was faster than the 1.4% rate during the first quarter, and well above the 2.1% rate economists had expected before the report. Russia's Central Bank Raises Its Key Rate as War Overheats Economy Russia's central bank raised its key interest rate for the first time this year, and signaled it is likely to raise borrowing costs again to tame a pickup in inflation driven by the diversion of manpower and other resources to sustain the country's attack on Ukraine. It raised the rate on Friday to 18% from 16%, well above its mid-2023 low of 7.5%, and close to the peak of 20% that immediately followed the February 2022 invasion of Russia's neighbor. China's Rate Cut Flurry Signals Phasing Out of Key Lending Tool China's surprise run of rate cuts this week has been welcomed as evidence of Beijing's willingness to bolster economic growth. For economists, the moves have also shed light on the central bank's evolving monetary policy framework, including the recasting of a key lending facility in a diminished role. The People's Bank of China started off the round of easing with a cut to its seven-day reverse repo rate on Monday. - Dow Jones Newswires Glynn's Take: Divergence in Australia, New Zealand Central Banks Offers Global Lessons By James Glynn Stifling the biggest surge in global inflation in decades has been the sole focus of most of the world's central banks for nearly three years now. Verdicts on which policy remedies have worked better will soon be rendered. The Southern Hemisphere presents a microcosm of the debate over how hard central banks should stomp on inflation, with policymakers in Australia and New Zealand taking polar opposite approaches on how to quell the problem of stubborn price growth. U.S. Economy Durable-Goods Orders Plummeted in June - But One Sector Was Largely to Blame Orders for durable goods fell 6.6% in June, the Commerce Department said Thursday. Economists had forecast a 0.3% rise in orders for durable goods in June - products made to last at least three years. It is the first decline in durable goods after four straight gains and was driven by a 20.5% drop in transportation orders. ( MarketWatch ) Financial Regulation Coinbase Unit Fined in U.K. for Taking On Risky Clients The U.K.'s financial regulator fined an arm of Coinbase , saying the unit had enabled crypto trading by risky clients totaling hundreds of millions of dollars, stoking concerns about potential money laundering. The Financial Conduct Authority levied the penalty on Coinbase's CB Payments arm. CB takes in deposits from customers, who then use the money to buy and sell cryptocurrencies on Coinbase. 10 a.m.: University of Michigan Survey of Consumers (final) Research U.S. GDP Growth Not Likely to Nix Fed's Sept Rate Cut Most economists expect the Federal Reserve to cut interest rates in September, and strong second-quarter GDP growth isn't likely to change that calculation, according to PNC Financial chief economist Gus Faucher. Although the labor market is strong, job growth has been slowing, inflation is seen as under control and high interest rates are still putting a drag on the economy. The CME's Fed funds futures market showed a continued consensus around a 25-basis point cut in September after the 2Q GDP report. - Victor Swezey Basis Points Inflation has become a hard-to-shake feature of Russia's war economy. Even as price rises have moderated across much of the developed world, Russia's struggles with price stability are getting worse . Inflation, though, kept rising, hitting over 9% this month, with a vast range of goods and services becoming costlier from potatoes (up 91% so far this year) to economy-class flights (up 35%). Now the central bank is set to further raise its policy rate on Friday. - Georgi Kantchev New Zealand consumer confidence jumped in July amid rising expectations of aggressive interest-rate cuts over the next year. The ANZ-Roy Morgan consumer confidence index rose 5 points in July to 87.9. The jump in confidence coincided with a hefty half-a-percent fall in inflation expectations to 3.7% on year, the lowest since September 2020, the data showed. - James Glynn Singapore's central bank left its monetary policy settings unchanged for a fifth straight time as it tweaked its economic outlook, expecting cooler inflation and stronger growth. The Monetary Authority of Singapore said it would maintain the prevailing rate of appreciation of the Singapore dollar nominal effective exchange rate policy band. - Ronnie Harui and Fabiana Negrin Ochoa Samsung Electronics worker Kim Jae-won is on an indefinite strike with thousands of colleagues in South Korea. They sit on the front lines of an issue affecting semiconductor makers globally: With the industry growing in importance and investment pouring in, how much of the bonanza should go to workers? Kim is a member of a labor union at Samsung demanding greater pay and benefits from the world's largest memory-chip maker. - Jiyoung Sohn French consumers felt a little less pessimistic this month, suggesting rising real incomes are offsetting political and economic headwinds in the eurozone's second-largest member. A measure of confidence published by France's statistics agency crept up to 91 in July from an upwardly revised 90 in June. - Joshua Kirby Unemployment in Spain declined in the second quarter as a continued tourism boom added jobs. The rate of joblessness eased to 11.27% between March and June, around a percentage point lower than in the first three months of the year, according to official figures from statistics body INE set out Friday. - Joshua Kirby If we could eliminate all methane emissions from human activities, including agriculture, waste, and fossil fuels-a big if-the level of methane in Earth's atmosphere would fall to preindustrial levels in only a decade or two, reducing global warming by 0.5 of a degree Celsius. This drop would help tremendously as we attempt to keep increased global warming from all gases below 1.5 or 2 degrees. - Rob Jackson Executive Insights Here is our weekly roundup of stories from across WSJ Pro that we think you'll find useful. The CrowdStrike global outage shows critical infrastructure is at the mercy of tech vendors doing everything right . That's not a good bet. Here's what tech leaders can do to reduce risks. Votes from the weakest talc claims against Johnson & Johnson could help the company end the mass cancer lawsuits it faces in bankruptcy court. The move to start disclosing payments from drug and medical-device companies to physicians a decade ago hasn't curtailed corporate influence over doctors. AI is known for its seemingly insatiable appetite for energy , but some tech leaders say innovations could help offset rising energy demand and keep AI's footprint in check. Listen to PepsiCo's sustainability chief discuss the beverage and food giant's regenerative agriculture investment and the journey to make its Lays chips sustainable from end to end. About Us WSJ Pro Central Banking brings you central banking news, analysis and insights from WSJ's global team of reporters and editors. This newsletter was compiled by markets reporter Hardika Singh in New York. Send your tips, suggestions and feedback to [hardika.singh@wsj.com]. This article is a text version of a Wall Street Journal newsletter published earlier today.