Market Insights 7/11/2019

Stock reached record highs, as Fed Chairman Jerome Powell’s two-day semiannual Congressional monetary policy testimony and a tame read on consumer prices kept Fed rate cut hopes alive.

Treasury yields were higher and the U.S. dollar ticked lower, with a decline in jobless claims the only other item on the economic calendar, while crude oil prices lost slight ground and gold came under pressure.

The Markets..

The Dow Jones Industrial Average rose 228 points (0.9%) to 27,088

The S&P 500 Index gained 7 points (0.2%) to 3,000

The Nasdaq Composite declined 7 points (0.1%) to 8,196

In light-to-moderate volume, 684 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil declined $0.23 to $60.20 per barrel and wholesale gasoline was down $0.02 at $1.99 per gallon

The Bloomberg gold spot price decreased $11.59 to $1,407.43 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—ticked 0.1% lower to 97.05

Consumer price inflation a bit hotter than expected, jobless claims decline

The Consumer Price Index (CPI) rose 0.1% month-over-month in June, above the Bloomberg estimate of a flat reading, and matching May’s unrevised increase. The core rate, which strips out food and energy, was 0.3% higher m/m, versus expectations of a 0.2% increase and north of May’s unadjusted 0.1% rise. Y/Y, prices were 1.6% higher for the headline rate, matching forecasts and below May’s unadjusted 1.8% rise. The core rate was up 2.1% y/y, north of projections calling for it to match May’s unadjusted 2.0% gain. Prices grew for shelter, apparel, used cars and trucks, household furnishings, medical care and motor vehicle insurance, while declines were seen in energy, recreation, airline fares and personal care. The food index was little changed as prices for food away from home rose but food at home declined.

Weekly initial jobless claims declined by 13,000 to 209,000, compared to estimates of 221,000, with the prior week’s figure being revised higher by 1,000 to 222,000. The four-week moving average dropped by 3,250 to 219,250, while continuing claims rose by 27,000 to 1,723,000, above estimates of 1,683,000.

The Fed remained in focus as Federal Reserve Chairman Jerome Powell concluded his two-day semiannual monetary policy testimony on Capitol Hill in front of the Senate Banking Committee, amid the backdrop of cooled rate cut expectations after last week’s stronger-than-expected June non-farm payroll report and the recent G-20 summit that delivered a trade truce between the U.S. and China. Yesterday, the U.S. dollar declined and Treasury yields were mixed, falling on the short-end of the curve as Fed Chief Powell preserved rate cut expectations after noting that crosscurrents, such as trade tensions and global growth worries have been weighing on economic activity and the outlook, while inflation pressures remain muted. He also reiterated that the Fed will “act as appropriate to sustain the expansion.”

Treasuries were lower, as the yield on the 2-year note was up 4 basis points (bps) to 1.86%, the yield on the 10-year note gained 7 bps to 2.13%, and the 30-year bond rose 8 bps to 2.65%.

More inflation data is expected tomorrow, courtesy of the Producer Price Index (PPI), with the headline rate expected to show a flat reading for June, while stripping out food and energy, the core rate is forecasted to have moved 0.2% higher m/m.

Europe mixed on central bank focus and growth concerns, Asia higher

European equities were mixed, with the euro and British pound rising versus the U.S. dollar in the wake of yesterday’s monetary policy testimony out of the U.S. that resuscitated rate cut expectations. The expected rate cut in the U.S. accompanied the release of the minutes from the European Central Bank’s June meeting that showed a broad consensus that the central bank needs to be prepared to ease its stance further. However, economic growth concerns appeared to counter the dovish monetary policy sentiment after yesterday’s lowered forecast from the European Union. Bond yields in the region traded mostly higher.

Stocks in Asia finished mostly to the upside, with U.S. Fed Chief Jerome Powell preserving rate cut expectations yesterday in his Congressional monetary policy testimony that had been tamped down by last week’s stronger-than-expected June employment report. Japanese equities gained ground, even as the yen gain noticeable ground, while South Korean securities also increased, continuing to chip away at a recent drop as trade tensions with Japan have increased. Stocks in mainland China and Hong Kong advanced, with the U.S. and China resuming trade talks after the G-20 summit yielded a tariff truce.