Stock Market Today – 8/12: Stocks Cautiously Higher As Inflation Concerns Fade

U.S. equity futures moved higher Friday, with the dollar clawing back gains against its global peers and Treasury bond yields edging north, as investors drew confidence from softer inflation data while parsing cautious comments from key Federal Reserve officials.

Slowing inflation figures earlier this week, including a flat month-on-month reading for July CPI and a pullback in factory gate prices, has clipped bets on another jumbo rate hike from the Fed when it meets next month in Washington.

However, San Francisco Federal Reserve Bank President Mary Daly warned yesterday that she didn’t want to be ‘head-faked’ but a single data series, telling Bloomberg Television that she would be “open to 75 (basis points) should the data evolve differently.”

Her comments followed a similar assessment from Minneapolis Federal Reserve Bank President Neel Kashkari, who told the Aspen Ideas Conference Wednesday hat the central bank is “”far, far away from declaring victory”, and still sees the need of a Fed Funds rate approaching 4% by the end of the year.

Inflation data has dominated markets for much of the week, and a final reading on consumer expectations due later today could cement bets that price pressures have peaked in the world’s biggest economy.

The University of Michigan’s closely-watched series of sentiment data, due at 10:00 am Eastern time, is likely to show a sharp decline in inflation expectations for both this year and next, thanks in part to tumbling gasoline prices and improving job prospects.

Data from the New York Federal Reserve’s monthly survey earlier this week should the biggest pullback in inflation expectations, with consumers estimating a 6.2% rate for this year and 3.2% for 2023, down from 6.8% and 3.6% respectively in the New York Fed’s June survey.

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Rate bets remain tempered, with the CME Group’s FedWatch now suggesting on a 61.5% chance of a 50 basis point hike in September, up from just 32% last week, but Treasury bond yields are quietly retracting back to levels prior to the July inflation release.

Benchmark 10-year notes were pegged at 2.869% in overnight trading, while 2-year paper was changing hands at 3.203%. The dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.36% higher at 105.459.

Global equity markets appeared more optimistic, even after last night’s late-hour selloff on Wall Street, with the Nikkei 225 rising 2.62% in Tokyo to close at a seven-month high of 28,548.98 points following Thursday’s public holiday.

The region-wide MSCI ex-Japan index was marked 0.16% higher into the close of trading, while Europe’s Stoxx 600 slipped 0.07% lower in mid-day Frankfurt trading.

Data from Bank of America’s closely-watched Flow Show report, in fact, showed the biggest inflow into U.S. stocks in two months, while global equity funds pulled in $7.1 billion in new cash. 

On Wall Street, futures tied to the S&P 500 are indicating a 15 point opening bell gain while those liked to the Dow Jones Industrial Average are priced for a 110 point bump. Futures linked to the tech-focused Nasdaq are indicating a 42 point advance.

Apple  (AAPL)  shares were active, rising 0.2% following a report that the tech giant will likely sustain the pace of iPhone sales into the final quarter of its fiscal year.

Johnson & Johnson  (JNJ)  shares edged 0.25% higher after the consumer healthcare group said it would completely halt the sale of its iconic talc-based baby powder products next year.

Rivian Automotive  (RIVN)  shares, meanwhile, slipped lower after the upstart electric truckmaker forecast a wider-than-expected 2022 loss but stuck to its forecast of producing 25,000 vehicles by the end of the year. 

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