Markets Hover Near Record Highs as Inflation Cools

Alexander Garcia
13 Jun, 2024
Miami

Market indexes lost early morning momentum as investors reviewed the second inflation report in as many days, indicating price pressures may be waning. 

The S&P 500 index and the Nasdaq Composite hovered around the flatline after producer price inflation eased more than expected, a day after consumer price inflation unexpectedly cooled in May. 

Producer price inflation slowed to an annual pace of 2.2% in May from 2.3% in April, the U.S. Bureau of Labor Statistics reported Thursday. 

Core producer prices, which exclude food, energy, and trade services, rose at an annual pace of 3.2%, matching the rate in April. 

On a monthly basis, producer prices declined 0.2% after rising 0.5% in April, and most of the decline in inflation in May could be traced to a 7.1% fall in gasoline prices. 

The latest update on factory-gate inflation follows the Federal Reserve's decision to hold its target rate range between 5.25% and 5.50%. 

The S&P 500 index and the Nasdaq Composite closed at new record highs for two consecutive days after consumer price inflation rose less than expected, and producer price inflation updates today showed price pressures may finally weaken to the Fed's target rate of 2%. 

Consumer price inflation peaked just above 9% in June 2022, and over the next year, price increases slowed to 3%. 

However, since then, inflation has failed to weaken, despite the Fed's eleven rate hikes in 2022 and 2023. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index increased 0.2% to 5,430.37, and the Nasdaq Composite advanced 0.7% to 17,737.21. 

The yield on 2-year Treasury notes edged higher to 4.72%, 10-year Treasury notes decreased to 4.27%, and 30-year Treasury bonds edged higher to 4.47%.

WTI crude oil increased $0.17 to $78.67 a barrel, and natural gas prices fell 7 cents to $3.01 a thermal unit.

Gold increased by $6.34 to $2,314.35 an ounce, and silver fell 29 cents to $29.25. 

The dollar index, which weighs the U.S. currency against a basket of foreign currencies, edged lower to 104.91.

 

U.S. Stock Movers

Dave & Buster's plunged 12.3% to $44.12, and the restaurant chain operator reported sharply lower-than-expected revenue in the first quarter. 

Broadcom soared 11.3% to $1,671.99 after the company posted better-than-estimated fiscal second quarter revenue of $12.49 billion and adjusted earnings of $10.96 per share. 

Oxford Industries declined 4.5% to $96.95 after the parent company of the apparel retailer Tommy Bahama reported less-than-expected revenue in the first quarter of $398.2 million and adjusted earnings per share of $2.66. 

 

European Markets Turn Lower Amid Rising Trade Tensions with China 

European markets faced headwinds amid interest rate path uncertainty and rising trade tensions with China. 

Benchmark indexes in Paris, London, and Frankfurt fell around 1% after the European Commission imposed additional tariffs on electric vehicles imported from China.

After seven months of investigation, the European Union imposed smaller-than-expected tariffs between 17.4% and 38% on Chinese automakers. 

Beijing is likely to retaliate with its own tariffs on agriculture, meat, and dairy imports from the European Union. 

Despite the additional tariffs imposed by the European Union, Chinese electric vehicle makers are likely to grow their market share in Europe amid rising demand for longer-range batteries and shorter battery recharge times. 

On the economic front, Germany's wholesale price index fell at a slower pace in May, and the eurozone's industrial output shrank in April. 

 

Eurozone Industrial Output Shrank in April

Industrial output in the eurozone rose 3% from a year ago in April, after a revised 1.2% decline in the previous month, Eurostat said in its monthly update. 

On a monthly basis, industrial output fell 0.1%, reversing a downwardly revised 0.5% increase in the previous month. 

Production of capital goods rose at a slower pace of 0.7% compared to 0.9% in March, and industrial output declined, deepening to 0.4% from 0.2%. 

However, energy equipment production rebounded to 0.4% from a decline of 0.1%, durable goods to 0.3% from a fall of 0.6%, and non-durable goods to 3.4% from a fall of 2.7%. 

 

Germany's Wholesale Prices Decline Slowed in May

Germany's wholesale prices in May declined 0.7% from a year ago, following a 1.8% decline in the previous month, Destatis reported Thursday. 

Wholesale prices declined for the 13th month in a row but fell at the slowest pace in the period due to the 13.9% decline in chemical product prices. 

Prices for iron, steel, and ferrous semi-finished metal products dropped 12.1%, and compared to April, these prices fell by 0.5%. 

Grain, raw tobacco, seeds, and animal feed declined 5.1% from a year ago but rose 3.4% from the previous month; milk, milk products, eggs, edible oils, and dietary fat prices eased 5.1% from a year ago. 

However, prices for fruits, vegetables, and potatoes increased by 6.4%; tobacco products increased by 5.4%; and sugar, confectionary, and baked products advanced by 7.2%. 

 

Europe Indexes and Yields

The DAX index decreased by 1.2% to 18,417.31; the CAC-40 index fell by 1.4% to 7,757.89; and the FTSE 100 index declined by 0.5% to 8,174.73. 

The yield on 10-year German bonds edged lower to 2.54%. French bonds inched lower to 3.18%; the UK gilts edged lower to 4.18%; and Italian bonds decreased to 3.97%.

The euro edged higher to $1.079; the British pound inched higher to $1.277; and the U.S. dollar weakened to 89.65 Swiss cents.

Brent crude decreased $0.47 to $82.12 a barrel, and the Dutch TTF natural gas rose by €1.33 to €36.29 per MWh.

 

Europe Stock Movers

Automakers in Germany, France, and Italy declined after the EU imposed additional tariffs on Chinese electric vehicles. 

Mercedes-Benz Group fell 1.9% to €63.55, Volkswagen Group plunged 3.7% to €105.55, and Stellantis eased 2.0% to €19.82. 

Wise PLC tumbled 11.5% to 745.0 pence after the international money transfer service provider targeted lower underlying income growth in the current year. 

Revenue in the fiscal year 2024 ending in March soared to £1.05 billion from £846.1 million, and pre-tax profit surged 229% to £481 million. 

The company estimated organic earnings growth in the current fiscal year to range between 15% and 20%. 

Crest Nicholson dropped 11.4% to 213.40 pence after the UK-based home builder swung to a net loss in the first half and lowered its annual earnings outlook again. 

Revenue in the first half fell to £257.5 million from £282.7 million, reflecting fewer new home bookings at the beginning of 2024. 

Net income in the first half ending on April 30 swung to a pre-tax loss of £30.9 million compared to a pre-tax profit of £28.4 million a year ago. 

The home builder lowered its 2024 pre-tax profit outlook to between £22 million and £29 million, from the previous range between £45 million and £50 million released in November. 

The company completed 788 homes in the first half, compared to 894 homes a year ago. 

The board declared an interim dividend of 1.0 pence per share, compared to a dividend of 5.5 pence per share a year ago. 

 

Yen Drifts Near Recent 35-year Low, Japan's Business Sentiment Decline Softens 

In mixed trading, market indexes lacked direction in Tokyo ahead of the Bank of Japan's monetary policy decisions on Friday. 

The Nikkei 2225 and the broader Topix index meandered around the flatline ahead of the widely anticipated Bank of Japan's decision to hold rates steady. 

In addition, investors are looking forward to Governor Kazuo Ueda's comments about the central bank's plan to purchase government bonds.

The Japanese yen weakened to 157.07 against the U.S. dollar, and the yield on 10-year Japanese government bonds hovered near 0.976%. 

The Bank of Japan is expected to hold interest rates steady, despite the recent acceleration in producer price inflation and rising inflationary pressures for consumers. 

The central bank's dovish stance is likely to weigh heavily on the yen, and the Japanese currency is expected to weaken to between 165 and 170 over the next six months. 

The Bank of Japan policymakers believe that a steady decline in the yen is the best possible outcome for the Japanese economy, supporting the price competitiveness of Japanese manufacturing products exported. 

The business survey index of large manufacturing companies fell less than expected, and forward-looking expectations rebounded, according to the survey results released by the Cabinet Office. 

The business climate index among large manufacturers declined by 1% in the second quarter after falling 6.7% in the first quarter. 

The mood improved after manufacturing companies reported solid earnings in the first quarter and ramped up domestic capital spending.

Manufacturers anticipate business conditions to improve by 9.2% in the third quarter and 10.7% in the fourth quarter. 

 

Japan Stock Movers

The Nikkei 225 Stock Average decreased 0.2% to 38,812.40, and the Topix Index fell 0.6% to 2,739.37. 

In the tech sector, Advantest, Tokyo Electron, Disco Corp., and Screen Holdings declined between 0.8% and 3.5%. 

Banks also participated in the downturn, and Mitsubishi UFJ, Mizuho Financial Group, and Sumitomo Mitsui fell more than 1%. 

Among the leading gainers, Renaissance Electronics soared 4.9% to ¥3,101.0, Taio Yuen advanced 4.3% to ¥3,793.0, and Recruit Holdings jumped 2.5% to ¥7,910.0. 

On the downside, Tokyo Electric Power, Chubu Electric Power, and Kansai Electric Power declined between 2% and 4%. 

Konica Minolta, T&D Holdings, Eisai, and Denka fell around 3%. 

 

China Markets Attempt to Rebound, EV Makers Surge Brushing Off EU Tariffs 

Benchmark indexes in Shanghai and Hong Kong rebounded amid hopes of additional market-supportive measures from the Chinese government. 

The CSI 300 and the Hang Seng index inched higher from the one-month level reached in Wednesday's trading as investors pinned their hopes on new market-supportive measures from the People's Bank of China and local Chinese governments. 

The three-monthlong market rally peaked in late May, and the benchmark indexes have lost as much as 9% in the last three weeks of trading. 

However, market sentiment recovered on the hopes that weakening inflation in the U.S. may support the case for at least one rate cut before the year's end. 

Moreover, the Hong Kong Monetary Authority held its key lending rate unchanged at 5.75%, reflecting the U.S. Federal Reserve's decision to hold its target rate range steady. 

The Hong Kong dollar is linked to the U.S. dollar, and the city's monetary authority revises rates following the rate announcements by the U.S. Federal Reserve to maintain the local currency's peg with the U.S. dollar. 

 

China Stock Movers 

The CSI 300 index declined 0.4% to 3,528.92, and the Hang Seng index rose 0.5% to 18,034.42. 

Electric vehicle makers advanced after the European Union's size of tariffs was deemed not restrictive enough for most Chinese vehicle makers. 

The European Union imposed between 17.4% and 38% tariffs on electric vehicles imported from China, according to a statement released by the European Commission. 

Companies participating in the seven-month EU probe faced a lower tariff rate, as tariffs imposed on Geely were 20% and on BYD 17.4%, but SAIC, which did not participate in the EU's subsidy probe, faced 38.1% import duties. 

The new tariffs will be in addition to the existing duty of 10%, effective July 4. 

Including the latest tariffs, Chinese vehicle makers will lose their price advantage but are likely to compete on design and advanced features, but makers may suffer from poor reliability and shoddy engineering practices. 

Geely Automobile Holdings, the largest vehicle exporter to the European Union, is likely to face fewer-than-expected hurdles in exporting cars to the region. 

Li Auto jumped 2.2% to HK$74.55, and BYD surged 6.5% to HK$234.20. 

QuantumPharm, a drug researcher using artificial intelligence technology, advanced more than 10% from its initial public offering price of HK$5.28 on the first day of trading in Hong Kong.