Slower U.S. Inflation Indicates Sky High Prices Are Still Rising, Global Markets Trade Sideways

Alexander Garcia
14 Aug, 2024
Miami

Stocks on Wall Street struggled to advance after consumer inflation dropped to a three-year low. 

The S&P 500 index and the Nasdaq Composite edged lower in active trading as closely watched consumer price inflation eased in July. 

Consumer price inflation slowed to 2.9% in July from 3.0% in June, and the measure of price increase fell to the lowest level since March 2021, the Bureau of Labor Statistics reported Wednesday. 

Core inflation, which excludes food and energy prices, slowed for the fourth month in a row to 3.2%. 

On a monthly basis, CPI increased by 0.2%, and core inflation increased by 0.2% from 0.1% in the previous month. 

A softer inflation report followed the softer producer price inflation report on Tuesday, raising hopes that the Federal Reserve is more likely to lower rates after the September policy meeting. 

Investors are looking forward to the release of retail sales data on Thursday. 

Despite the cooling of inflation, prices are still rising from a higher base, and the price of homes, automobiles, food, consumer services, and energy products is still higher by between 50% and 100% from the pre-pandemic levels in 2019. 

Most consumers are still feeling stretched because wage gains have lagged inflation significantly over the last five years. 

The Federal Reserve's premature rate reduction will only fan inflationary forces and revive price increases at a faster pace in the fourth quarter and beyond, which could start another round of the inflation cycle. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index rose 0.2% to 5,444.64, the Nasdaq Composite decreased 0.2% to 17,148.66, and the Russell 2000 index decreased 0.7% to 2,079.75. 

The yield on 2-year Treasury notes edged lower to 3.96%, 10-year Treasury notes decreased to 3.83%, and 30-year Treasury bonds inched lower to 4.13%.

WTI crude oil decreased $0.81 to $77.52 a barrel, and natural gas prices edged down 4 cents to $2.34 a thermal unit.

Gold decreased by $19.99 to $2,444.13 an ounce, and silver fell by $0.52 to $27.31. 

The dollar index, which weighs the US currency against a basket of foreign currencies, edged lower to 102.38.

 

U.S. Stock Movers

Kellanova surged 7.8% to $80.35 after the snack maker agreed to be acquired by Mars for $83.50 per share in cash, or a total consideration of $35.9 billion, including debt. 

The purchase price represents a premium of approximately 44% to Kellanova’s unaffected 30-trading day volume weighted average price and a premium of approximately 33% to Kellanova’s unaffected 52-week high as of August 2, 2024. 

The total consideration represents an acquisition multiple of 16.4 of adjusted operating earnings as of June 29.

Brinker International decreased 13.4% to $60.97, and the parent company of Chili's restaurant chain reported weaker-than-expected fiscal fourth quarter earnings. The company's annual guidance fell short of market expectations. 

Revenue in the quarter ending on June 26 increased to $1.2 billion from $1.1 billion, net income edged up to $57.3 million from $54.2 million, and diluted earnings per share expanded to $1.24 from $1.19 a year ago. 

Comparable restaurant sales increased by 13.5%, driven by a 14.8% increase at Chili's and a 2.5% increase at Maggiano's restaurant chains. 

Alphabet Class A declined 3.6% to $158.19 after a Bloomberg New report suggested that U.S. regulators are considering a break-up of mega-cap tech companies. 

 

European Markets Extended Recent Rally

European markets edged slightly higher, and investors reviewed key economic data in the eurozone and the U.K. 

Benchmark indexes in Paris, London, and Frankfurt advanced after the eurozone GDP in the second quarter was confirmed to expand 0.3% from the previous quarter, matching the flash estimate. 

On an annual basis, GDP expanded by 0.6% in the second quarter, following the 0.5% increase in the first quarter, Eurostat reported Wednesday. 

Eurozone's industrial output, adjusted for seasonal factors, declined 3.9% on the year and gained 0.3% from the previous month in June, Eurostat reported in a separate report Wednesday. 

Energy production increased 1.4%, intermediate goods production rose 0.7%, capital goods advanced 0.9%, consumer durable goods production increased 3.2%, and consumer non-durable goods production decreased 2.0%. 

Consumer price inflation in the U.K. accelerated to an annual pace of 2.2% from 2.0% in June, the Office for National Statistics reported Wednesday. 

Consumer prices accelerated for the first time since December, and the core rate of inflation, which excludes energy and food prices, eased to 3.3% from 3.5% in the previous month. 

 

Europe Indexes and Yields

The DAX index increased by 0.4% to 17,885.60; the CAC-40 index rose by 0.8% to 7,333.36; and the FTSE 100 index advanced by 0.6% to 8,281.05. 

The yield on 10-year German bonds edged lower to 2.19%, French bonds inched down to 2.93%, the UK gilts edged lower to 3.85%, and Italian bonds inched up to 3.58%.

The euro edged down to $1.10; the British pound inched lower to $1.282; and the U.S. dollar weakened to 86.30 Swiss cents.

Brent crude decreased $0.29 to $80.39 a barrel, and the Dutch TTF natural gas fell by €0.41 to €38.95 per MWh.

 

Europe Stock Movers

UBS Group AG jumped 3.5% to CHF 26.0, and the Swiss bank reported that second-quarter profit jumped to $1.1 billion. 

Straumann Holding soared 12.8% to CHF 125.20 after the dental implant maker lifted its 2024 guidance. 

Revenue in the first half increased 16.1% to 1.3 billion. 

The company also announced the sale of its DrSmile aligner business to Barcelona-based Impress Group in exchange for a 20% stake in the dental clinic network operator in Spain, the UK, Italy, and Portugal. 

Aviva plc increased 0.2% to 489.70 pence after the insurance company reported a better-than-expected 14% increase in operating profit in the first half. 

Balfour Beatty decreased 2.3% to 398.82 pence, despite the construction service provider reporting an increase in earnings for the first half. 

Flutter Entertainment jumped 8.7% to 15,930.0 pence, and the world's largest online betting firm reported better-than-expected second quarter results and lifted its annual outlook. 

TUI AG increased 2.6% to €5.69, and the tour operator reported better-than-expected profit in the fiscal third quarter. 

ThyssenKrupp declined 4% to €3.16 after the steelmaker lowered its annual profit estimate for the third time this year. 

Revenue in the third quarter decreased to €9.0 billion from €9.6 billion, adjusted EBIT fell to €149 million from €243 million, and new orders slowed to €8.4 billion from €9.4 billion a year ago, respectively. 

The steel company revised its annual sales to decline between 6% and 8% and adjusted EBIT to be around 500 million from the previous estimate of an "increase in the high three-digit million euros range." 

 

Japan Indexes Extend 2-day Rally, Prime Minister Kishida Announces to Resign

Market indexes in Tokyo extended gains for the second day in a row following a sharp rebound in overnight trading in New York. 

The Nikkei 225 index gained 0.7% and the Topix index advanced more than 1%, driven by a rise in tech and financial stocks. 

Market sentiment recovered for the second day in a row, but enthusiasm was tempered amid lingering worries about the rate path and the appropriate level of the yen-dollar exchange rate. 

Investors have been on edge after the Bank of Japan unexpectedly raised rates at the end of July and signaled more rate hikes to follow, supporting the strengthening of the yen. 

However, investors are still worried that the yen may face renewed pressure because of the large yield gap between the Japanese and U.S. bonds. 

That rate gap could shrink in the fourth quarter if the U.S. Federal Reserve lowers rates by as much as 75 basis points and the Bank of Japan lifts rates by another 25 basis points. 

The yen closed at 147.15 against the U.S. dollar in Tokyo trading. 

Benchmark indexes experienced a wild swing in the last week after the BoJ's hawkish outlook, coupled with economic slowdown worries in the U.S. 

On the economic front, the Reuters Tankan Survey showed business sentiment among manufacturing companies weakened in August amid lackluster demand from China. 

Prime Minister Fumio Kishida informed leaders of the Liberal Democratic Party that he is not planning to seek reelection at the end of his three-year term in September. 

Kishida's move now shifts the focus to younger leaders at the party's election next month. 

 

Japan Movers 

The Nikkei 225 Stock Average jumped 0.7% to 36,495.29, and the Topix index gained 1.2% to 2,584.10. 

Tech and semiconductor equipment makers rebounded for the second day in a row after the Nasdaq Composite jumped more than 2% in overnight trading. 

Advantest, Tokyo Electron, Screen Holdings, Lasertec, and SoftBank advanced between 2% and 4%. 

Mercari dropped 7.4% to ¥2,013.50, and the online marketplace operator signaled challenges in its U.S. operations. 

The company said revenue in the financial year ending in June increased 9% and core operating profit advanced 13% from a year ago, respectively. 

 

China's Weak Credit Demand Highlights Changing and Slowing Economic Activities

Stocks in China faced headwinds as weak demand for new loans raised additional worries about the economic growth outlook. 

The Hang Seng index decreased 0.4% and the CSI 300 index fell 0.5% as investors awaited the release of retail sales and industrial output data on Thursday. 

The Hang Seng halted its five-day rally amid worries about the macroeconomic backdrop and weak outlook for corporate earnings. 

China's new loans plunged 88% to 260 billion yuan, or $36.3 billion, in July, driven by weak credit demand, the People's Bank of China reported late Tuesday. 

New loans in June were 2.13 trillion yuan and 345.9 billion yuan a year earlier.

The weakness in corporate loans and residential mortgage loans dragged the overall demand for new credit, driven by seasonal factors that also played a role, as July is generally a weak month for new loans. 

China's new loan demand is on the slide as new residential property construction plunges and demand from local government financing vehicles sharply falls. 

Investors are bracing for more weak economic data on Thursday, and retail sales are likely to rise less than 3% and manufacturing production is expected to show broad weakness despite the strong export shipments. 

 

China Stock Movers 

The Hang Seng index declined 0.4% to 17,110.23 and the CSI 300 index dropped 0.5% to 3,316.61. 

Tencent Holdings declined 2.7% to HK $370.40, Alibaba Holding decreased 0.3% to HK $78.40, and Baidu fell 0.2% to HK $82.45. 

Zhejiang Weihua New Material soared 40% to 23.81 yuan on its first day of trading in Shanghai, and the maker of fluorinated fine chemicals raised 1.5 billion yuan in an initial public offering.