Scott Olson
Major market averages advanced on Thursday morning after inflation rose slightly less than what was anticipated Y/Y in July.
The Nasdaq Composite (COMP.IND) was +1.5%, the S&P 500 (SP500) was +1.2%, and the Dow (DJI) was +1.2% following the selloff in the previous session.
“While it would be hard to say this has been a bad August for markets so far, it seems to be hard to get through a day at the moment without a negative shock of some description,” Deutsche Bank’s Jim Reid said. “Yesterday’s negativity was from a +27% spike in European natural gas prices (with a +40% intra-day high), the largest percentage increase since early March 2022, albeit still -87% below the peaks back in late August 2022. Oil also edged up above its April highs to the highest levels since last November.”
“These inflationary moves ironically come ahead of a big US CPI today which has of late been the print to give most encouragement to the soft landing argument,” Reid said. “It’s likely too early for any recent commodity increases to show up in the data but we’ll all be watching oil, gas and food prices over the next few weeks and months. As it stands they should help to push up headline inflation shortly before the September FOMC which will be a bit uncomfortable even if core will be the main focus.”
Rates drifted lower. The 10-year Treasury yield (US10Y) dipped 2 basis points to 3.99%. The 2-year yield (US2Y) was down 2 basis point to 4.79%.
See yield trading across the curve at Seeking Alpha’s bond page.
The July CPI report arrived +0.2% versus the consensus number of 0.2%. Y/Y inflation came in softer at 3.2% versus the anticipated 3.3%. Core CPI M/M came in at +0.2% and +4.7% Y/Y.
“There’s been progress made (on inflation) to the downside, but the burning issue for bonds is whether the inflation threat has actually been dealt a death blow,” ING said. “Based on the market expectations for inflation, it hasn’t.”
“For that reason, we stick to our cautious approach to bonds, eyeing higher yields. We also remain under considerable supply pressure this week. Decent US 10yr auction yesterday. Minor tail, virtually none. High indirect bid, and reasonable cover. Not as good as the 3yr. But it did not tail, as some had feared. The 30yr auction is up next.”
Weekly jobless claims also arrived at 248K compared to the forecasted 230K level.
See the stocks making the biggest moves this morning.
