Inflation Gauges Mild Increase at 3.2%: Unpacking July's CPI Report

Favorable CPI reports cause markets to rally after the morning bell, only to see markets sell of after lunch. 

Morning Surge: Markets Open Strong Amid Lower Inflation

Equity markets commenced the day with an upswing as the July headline Consumer Price Index (CPI) data came in at 3.2%, notably below expectations. Core CPI also showed moderation, decreasing from last month’s reading of 4.8% to 4.7%. This led to a drop in Treasury bond yields, with the 10-year yield falling to 4.0%. The futures market indicated a positive outlook, reflecting the anticipation of the Fed holding off on rate hikes due to favorable inflation data.

What Happened in the Market

In the Energy sector, despite oil prices falling, there was a tiny gain. This unusual occurrence can be attributed to the sudden jump in natural gas prices, which has added a layer of complexity to the market analysis.

In the technology sector, the Nasdaq exhibited strong performance, propelled by technology giants. Companies like Walt Disney and Verizon did great, capitalizing on positive market sentiments, while traditional industries like Caterpillar struggled due to various sector-specific challenges.

Stocks That Did Well and Others That Struggled

Certain companies performed exceptionally well, like Walt Disney, Verizon, and Amgen, buoyed by positive news and strong market fundamentals. In contrast, Caterpillar faced difficulties, possibly due to industry trends and macroeconomic factors. These individual performances provide insight into the broader market and can help identify emerging trends and future growth areas.

CPI Data: Prices Seem to Be Settling Down

In July, the U.S. annual inflation rate rose to 3.2%, a slower increase than anticipated and an indication of moderation from the 8.5% figure a year ago. This tempered rise, seen as a favorable sign for consumers burdened by high costs, was driven mainly by the 0.4% growth in shelter costs, up 7.7% from the previous year. While there were declines in used vehicle prices and medical care services, essential costs like shelter and energy persistently strained American households. Food and energy saw modest increases of 0.2% and 0.1%, respectively. The Federal Reserve’s latest interest rate hike reflects a continued but cautious effort towards its 2% inflation target. With the strong labor market offering some hope for financial improvement, the uncertainty of rising oil prices and their impact on inflation remain vexing issues, challenging both consumer budgets and central bank policies.

Jobs Market Shows Some Changes

New employment data reveals a minor increase in the number of people actively seeking work. Though not a significant concern at the moment, these changes in the labor market must be monitored, as the number of people out of work is still relatively low. Employment trends often serve as early warning signs for broader economic shifts.

Government Borrowing and What It Means

Government borrowing, conducted through the issuance of Treasuries, is a crucial aspect of macroeconomic management. Recent changes in Treasury yields indicate a subtle shift in market sentiment, possibly reflecting altered perceptions of risk and reward. Such changes in government borrowing patterns can influence investment decisions across markets, affecting both individual investors and institutional strategies.

Market Close

The major indices concluded a day of measured fluctuation with the NASDAQ Composite Index settling at 13,756.81 (+34.80, +0.25%), the S&P 500 Index at 4,479.09 (+11.38, +0.25%), and the Global Dow Realtime USD at 4,177.43 (+21.52, +0.52%). Gold Continuous Contract experienced a slight decline, ending at $1,946.30 (-4.30, -0.22%). Treasuries were mixed in the face of tomorrow’s anticipated CPI data, and the day’s close echoed the steady but cautious tones resonating across global markets.

As the broader market built up strength, the session was marked by consolidation and positioning ahead of key economic insights, resulting in a day of consolidation and selling in the afternoon session.


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