Stocks ease, US yields rise after hot US inflation data shakes confidence in Fed rate cut
The benchmark S&P 500 eked out a fresh closing high for the third straight session, while the Dow and the Nasdaq finished little changed. The Dow Jones Industrial Average eased 0.02 per cent, the S&P 500 rose 0.03 per cent and the Nasdaq Composite dipped 0.01 per cent.
"We've had a good ride for the last few trading days," said Genter Capital Management CEO Dan Genter. "The PPI (Producer Price Index) number was not something that was going to rally the market further, but it also wasn't something that was going to particularly scare the market."
U.S. producer prices rose 0.9 per cent in July, the Labor Department reported, surpassing consensus forecasts for a 0.2 per cent gain. Investors have been watching for signs of inflation pressures from U.S. President Donald Trump's tariffs.
European stocks held gains from earlier in the day and were last 0.55 per cent higher. MSCI's gauge of stocks across the globe fell 0.12 per cent to 951.91, taking a breather a day after hitting an all-time high.
"I think the market is falling into an acceptance that the overall economy is slowing ... and having some confirmation with the inflation numbers puts us in a good place for at least two 25-basis-point cuts that this market is going to need for support," Genter added.
U.S. Treasury yields leaped after the inflation data as expectations for jumbo Fed rate cuts faded. The two-year note yield was last up 4.5 basis points at 3.732 per cent. The benchmark U.S. 10-year note yield rose 4.9 basis points to 4.289 per cent.
Money markets showed traders still almost unanimously expect the Fed to cut borrowing costs next month, although some traders have lowered their bets. Markets are predicting a 92.5 per cent chance that the Fed will cut rates by 25 basis points in September, down slightly from 94.3 per cent on Wednesday but up from nearly 59 per cent a month ago, according to the CME FedWatch tool.
"We have been too anxious to draw a conclusion that the economy is fine; it's not overheated," said Peter Andersen, founder of Andersen Capital Management in Boston. "But this wholesale data does show that perhaps there is some inflation working, and we shouldn't be so quick to conclude we need to cut interest rates."
"It reinforces the case that the Fed might say we still don't have a clear picture yet, based on the tariffs in the employment picture to take any action, and I would expect that they would tend to be neutral and make no change in September as opposed to the majority of opinions out there," Andersen said.
About 70 per cent of global investors expect U.S. stagflation, with growth slowing as consumer price rises accelerate, to become the dominant market narrative within three months, a Bank of America survey found this week.
The dollar rose against major peers after falling in the prior session. It strengthened 0.25 per cent to 147.75 against the Japanese yen and was up 0.39 per cent at 0.808 against the Swiss franc.
The euro fell 0.49 per cent to $1.1647. The dollar index tracking the greenback against peers, including the euro and Japan's yen edged 0.5 per cent higher.
Trump on Wednesday threatened "severe consequences" if Russian leader Vladimir Putin did not agree to peace in Ukraine at a Friday meeting and has also floated the idea of a second summit that would include Ukrainian President Volodymyr Zelenskiy.
Brent crude, the global oil benchmark, rose from almost a two-month low to settle up 1.84 per cent to $66.84 a barrel and U.S. crude added 2.09 per cent to settle at $63.96.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CNA
an hour ago
- CNA
Intel shares rise on report of possible US government stake
Intel shares rose 3 per cent on Friday on hopes of more financial aid for the turnaround of the struggling chipmaker after a report that the U.S. government may buy a stake. The Bloomberg News report followed a meeting between CEO Lip-Bu Tan and President Donald Trump on Monday after Trump demanded the new Intel chief's resignation over his "highly conflicted" ties to Chinese firms. Trump, who called the meeting "very interesting", has taken an unprecedented approach to interventions and deal-making with corporate America. His administration had struck a deal with MP Materials that would make the Department of Defense the largest shareholder of the rare-earth producer. Federal backing could give Intel more time to revive its loss-making foundry business, analysts said, but it still faces a weak product roadmap and trouble attracting customers for new factories. Under the Biden administration, Intel had emerged as one of the biggest beneficiaries of the 2022 CHIPS Act, as former CEO Pat Gelsinger laid out plans to build advanced factories. Tan, however, pared back such ambitions, slowing construction of new plants in Ohio. He plans to build factories based on demand for the services, which analysts have said could put him at odds with Trump's push to shore up American manufacturing. The report said a deal would help build out the Ohio plant, which has faced delays and was expected to be completed by 2030. It could be a "game-changer", said Matt Britzman, senior equity analyst at Hargreaves Lansdown. But he warned "government support might help shore up confidence, but it doesn't fix the underlying competitiveness gap in advanced nodes." Intel lost its competitive edge years ago to Taiwan's TSMC. It has virtually no presence in the booming AI chips market dominated by Nvidia and is losing market share in PCs and datacenters to AMD. Its latest 18A manufacturing process is facing quality issues, Reuters has reported, as only a small share of chips produced are good enough for customers, while it remains partly dependent on TSMC to make Intel in-house designed chips. "Intel also needs capability; can the US government do anything to help here?" Bernstein analysts said.
CNA
2 hours ago
- CNA
Intel shares rise as report of likely government stake stokes hopes of US aid
Intel shares rose nearly 3 per cent on Friday on hopes of more financial aid for the turnaround of the struggling chipmaker after a report that the U.S. government may buy a stake. The Bloomberg News report followed a meeting between CEO Lip-Bu Tan and President Donald Trump on Monday after Trump demanded the new Intel chief's resignation over his "highly conflicted" ties to Chinese firms. Trump, who called the meeting "very interesting", has taken an unprecedented approach to interventions and deal-making with corporate America. His administration had struck a deal with MP Materials that would make the Department of Defense the largest shareholder of the rare-earth producer. Federal backing could give Intel more time to revive its loss-making foundry business, analysts said, but it still faces a weak product roadmap and trouble attracting customers for new factories. Under the Biden administration, Intel had emerged as one of the biggest beneficiaries of the 2022 CHIPS Act, as former CEO Pat Gelsinger laid out plans to build advanced factories. Tan, however, pared back such ambitions, slowing construction of new plants in Ohio. He plans to build factories based on demand for the services, which analysts have said could put him at odds with Trump's push to shore up American manufacturing. The report said a deal would help build out the Ohio plant, which has faced delays and was expected to be completed by 2030. It could be a "game-changer", said Matt Britzman, senior equity analyst at Hargreaves Lansdown. But he warned "government support might help shore up confidence, but it doesn't fix the underlying competitiveness gap in advanced nodes." Intel lost its competitive edge years ago to Taiwan's TSMC. It has virtually no presence in the booming AI chips market dominated by Nvidia and is losing market share in PCs and datacenters to AMD. Its latest 18A manufacturing process is facing quality issues, Reuters has reported, as only a small share of chips produced are good enough for customers, while it remains partly dependent on TSMC to make Intel in-house designed chips. "Intel also needs capability; can the US government do anything to help here?" Bernstein analysts said.
CNA
3 hours ago
- CNA
Dollar slips before data, yen outperforms, eyes on Trump-Putin meeting
The dollar slipped on Friday with investors cautious about the rate outlook ahead of import price data, after recent figures suggested inflation could accelerate in the coming months. The yen outperformed the euro and the pound following the release of surprisingly strong Japanese growth data, which showed export volumes held up well against new U.S. tariffs. All eyes will be on a meeting in Alaska later on Friday between Donald Trump and his Russian counterpart Vladimir Putin, focused on the U.S. president's push to seal a ceasefire deal on Ukraine. U.S. import price figures will be more closely watched than usual after data on Thursday showed a sharp jump in producer prices last month, pushing the dollar higher. If import prices keep rising, it may signal that U.S. companies are fully absorbing the tariffs, leaving them with two options: pass the costs on to consumers, potentially stoking inflation, or take the hit to profit margins. Money markets reflect a 95 per cent chance of a 25-basis point Fed rate cut in September. They fully priced a 25-bp cut and a 5 per cent chance of a larger 50-bp move before Thursday's U.S. data. Markets also await next week's Jackson Hole symposium for clues on the Fed's next move. Signs of weakness in the U.S. labour market combined with inflation from trade tariffs could present a dilemma for the Fed's rate cut trajectory. The U.S. dollar index, that measures the value of the greenback relative to a basket of six major foreign currencies, was down 0.33 per cent at 97.882. However, it's not just a matter of rate outlook divergence according to some analysts. Morgan Stanley estimates that the dollar risk premium is currently 6 per cent compared to a range of 5 per cent to 9 per cent since April. The bank sees ample scope for it to return to, or even exceed, those peaks, potentially weakening the U.S. currency, because investors are increasing the share of their U.S. asset exposure that is hedged against exchange rate risks. After Trump's so-called Liberation Day tariff announcements, markets sold off U.S. assets, including the greenback, on fears that Washington was about to launch a trade war against its major allies. The yen was up 0.56 per cent against the dollar at 146.94, helped by data showing Japan's economy grew much faster than expected in the second quarter. U.S. Treasury Secretary Scott Bessent's remarks earlier this week that the Bank of Japan could be "behind the curve" in dealing with the risk of inflation proved to be another tailwind for the yen. "Although BoJ Governor Ueda may choose to disregard Bessent's remarks, the Japanese authorities will not want the value of the yen to become more of a concern to the Trump administration than it already is," said Jane Foley senior forex strategist at RaboBank. The euro rose 0.34 per cent versus the dollar to $1.1687. Most analysts expect Europe's single currency to benefit from any ceasefire deal in Ukraine. "The Trump-Putin meeting and any better clarity on the path ahead in the Ukraine conflict have longer-lasting implications for the euro than for the dollar," said Francesco Pesole, forex strategist at ING. "There is a chance that today might be the first step in the direction of de-escalation, and markets may tread carefully for now," he added. The pound was up 0.24 per cent against the U.S. currency at $1.3563. The Australian dollar was up 0.25 per cent versus the greenback at 0.6512. Elsewhere, bitcoin and ether rose after dropping about 4 per cent each on Thursday. Bitcoin had at one point touched a record high on Thursday on shifting Fed rate-cut expectations.
