ECB to Go Slow on Rate Cuts as Elections Feed Risks, Poll Shows

Economic

Central Bank

Summary:

Economists predict next reduction will arrive in September. US presidential vote now deemed top risk to euro-zone economy.

The European Central Bank will take a measured approach to lowering interest rates as political upheaval opens up a litany of risks to inflation’s return to 2%, according to a Bloomberg survey of analysts.

After June’s initial quarter-point reduction, respondents expect officials to take a timeout when they meet next week. Cuts are expected to resume again in September, coming once a quarter until the deposit rate reaches 2.5% a year later.

ECB to Go Slow on Rate Cuts as Elections Feed Risks, Poll Shows_1

The gradual reversal of unprecedented monetary tightening reflects rising difficulty in assessing the economic pitfalls ahead for the 20-nation euro zone. Inflation pressures remain strong, and the recovery from months of stagnation may already be fizzling out. Elections, meanwhile — especially across the Atlantic — are forcing investors to rethink everything from government spending to trade.

Analysts now rank November’s US presidential vote and the threat of another term for Donald Trump as the biggest danger to the region’s economy, while France’s turmoil has stirred memories of Europe’s sovereign-debt crisis last decade.

Faced with such uncertainty, officials led by President Christine Lagarde aren’t pre-committing to a path for rates, pledging to decide as data arrive. Chief Economist Philip Lane is among those saying July mainly provides an opportunity to take stock.

Markets are even more circumspect than economists, only fully pricing one more reduction in the deposit rate this year, though leaning toward another.

ECB to Go Slow on Rate Cuts as Elections Feed Risks, Poll Shows_2

“There’s simply no urgency to continue cutting rates at the current juncture,” said Carsten Brzeski, ING’s head of macro. “Therefore, the ECB will finally stick to its data-dependency approach and will — and should — refrain from giving any forward guidance.”

Political factors are casting an ever-longer shadow. In the US, the threat posed by Trump is compounded by confusion over whether he’ll face President Joe Biden or another Democratic candidate. At home, snap French elections have rattled investors, even if the situation has stabilized somewhat since the initial shock.

The vast majority of analysts says the ECB won’t shift course as a result of events there. Only one of the 29 polled expects officials to tweak their quantitative-tightening plans. Just two see them tilting remaining reinvestments toward France.

“This is an option for the Eurosystem ahead of any contemplation of the TPI,” Scope Ratings Dennis Shen economist said, referring to a backstop created in 2022 to counter “unwarranted, disorderly” market moves as the ECB started to hike rates.

Only one respondent says the program will be activated in the next three months.

In contrast, a significant number frets that economic growth could be weaker and inflation stronger than the ECB projected in June. Services costs, in particular, are still a big concern, driven partly by wage gains that are expected to remain strong.

ECB to Go Slow on Rate Cuts as Elections Feed Risks, Poll Shows_3

“Service-sector firms report that supply factors, not a lack of demand, are inhibiting them from increasing output,” said Andrzej Szczepaniak, senior European economist at Nomura. “Hence, still acute labor shortages and resilient services demand risk keeping service-sector inflationary pressures elevated near- and medium-term.”

Next week’s meeting should be “uneventful,” he reckons, with the focus on “whether the ECB tees up September for another cut.”

Some say the growing chances of a reduction in US borrowing costs by the Federal Reserve may nudge its counterpart in Frankfurt to act more rapidly.

“With Fed rhetoric shifting anew toward interest-rate cuts as activity and labor-market data appear to normalize from very robust levels, the ECB should put the resumption of cuts back in the table,” said Hlias Tsirigotakis, an economist at the National Bank of Greece.

Nobody, though, expects rates to be reduced on Thursday.

“Incoming data are noisy, and it will be uneasy for the Governing Council to reach a clear view of the extent of the rebound in terms of growth and the underlying trend in inflation,” said Sylvain Broyer. “All this in an unsettled political landscape in Europe and nervous debt markets.”

Source:Bloomberg

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Westpac

Economic

Central Bank

What caused the marked change in the RBNZ's tone in the July OCR Review?

Like most commentators and financial market participants, we were very surprised by the marked change in tone in this week's July OCR Review. The economy has looked to be steadily weakening relative to the RBNZ's May Statement view. Hence, we expected the RBNZ would soon begin to moderate the very hawkish tone conveyed in the May Statement. But we didn't expect as large a shift so soon given in May the RBNZ seemed particularly hawkish and had pushed out the timing of the first policy easing until August 2025. We thought it more likely the RBNZ's view would begin to evolve in the August Statement and converge towards our own longstanding view that easing could begin early in 2025.

But the July OCR Review message was much less hawkish than that. We discussed the main features of the July OCR Review in our review. In summary, the commentary in the press statement and record of meeting pointed to a more optimistic outlook for inflation this year and a less optimistic outlook for activity, with the latter now said to be "declining" based on high-frequency indicators. And most jarring of all was the final paragraph of the press statement: "The Committee agreed that monetary policy will need to remain restrictive. The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures" (our emphasis in italics). This latter discussing of future policy easing was not expected at this review and was surprising as the RBNZ likely understood markets would amplify the point and push even harder for a much earlier move in the OCR.

So, what has led to such an abrupt change in the RBNZ's tone? We think that the RBNZ has been sufficiently shaken by the flow of data and business commentary since the May meeting to move totally away from their previous tightening bias.

The path for activity has been reassessed.

We suspect the latest QSBO business survey was key as it echoed earlier indications from the ANZ Business Outlook survey and from the BusinessNZ PMIs. Collectively these surveys suggest that GDP likely contracted in the June quarter, in contrast with the RBNZ's forecast of modest growth, with little indication of a pick-up in the second half of the year.

The QSBO also pointed to a further easing of pressures in the labour market and associated indicators of productive capacity. This confirmed the reading from our own Employment Confidence Survey and an emerging downtrend in filled jobs, as measured by the Monthly Employment Indicator and the even more timely weekly filled jobs data (taken from tax data).

Inflation looks more likely to be below 3% in 2024.

Importantly, the QSBO also confirmed the significant step lower in firms' pricing intentions that had been reported in the May and June editions of the ANZ Business Outlook survey. These now suggest inflation will soon return to the inflation target range. This data, combined with the latest monthly CPI indicators, has likely been the key driver of the RBNZ's increased confidence that headline inflation will return to within the target range "in the second half of this year" (in May the RBNZ forecast inflation below 3% "by the end of 2024").

The return of inflation to the 1-3% target range would be an important milestone for the RBNZ. The RBNZ's relatively hawkish stance since late 2023 has been entirely driven by concerns that inflation would take too long to adjust lower. It seems that the RBNZ's optimism has significantly increased which is giving them room to shift strategy towards considering easing.

Why did the RBNZ make this change in July, and not wait until August?

The abrupt shift in tone at the July Review raises significant questions about the RBNZ's current view of the OCR profile and the likely timing of the first policy easing. It's almost certain that the RBNZ's OCR profile is much flatter and shows earlier easing than before. The key question is how large their adjustment is relative to the 60% chance of a further 25 bp hike in interest rates and an initial easing at the August 2025 Statement that was previously forecast.

We suspect their adjustment is relatively large as otherwise we doubt that the RBNZ would have felt the need to make such a significant change to its policy stance this week, especially with important inflation and labour market data looming.

Referring to the RBNZ's past forecasts of the OCR through 2024 and 2025 could help provide a benchmark for how large the reassessment might be. With the May Statement view being stale, some potential options to consider are the RBNZ's forecasts back in February 2024 (when they expressed a relatively dovish view compared to market expectations) and May 2023 (when the RBNZ thought the tightening cycle was over and the next move in the OCR would likely be lower). The chart below summarizes the RBNZ's past OCR forecasts.

What Would RBNZ Need to See to Start Cutting?_1

These benchmarks might provide a range within the RBNZ could be sitting now while awaiting the key CPI and labour market data ahead. A move back to their February view (removing the May hawkish sojourn) would imply easing around February 2025 (Westpac's current forecast). Total easing through 2025 would add up to around 50- 75 points.

A move back to May 2023 could provide a relatively dovish alternative. The overall inflation forecasts are not much different (perhaps a tad higher) than what we face today (although the markedly higher non-tradables profile would suggest caution in extrapolating the expected fall in inflation too far ahead). That scenario showed a chance of an easing in October 2024 and a likely easing in November 2024.

The decision to change course in the July Review likely means that the RBNZ now sees some possibility that incoming data could make a compelling case for policy easing before the end of this year. That would be consistent with the RBNZ lying somewhere within the range of where it has been in May 2023 and February 2024.

The RBNZ is almost certainly giving some weight to the possibility that near-term growth outlook could be considerably weaker than forecast in May, with significant downside consequences for the medium-term inflation outlook. Hence the RBNZ probably felt it needed to begin moving away from its very hawkish May view sooner rather than later. This would allow for a less jarring change of tone in the August or October policy reviews should downside risks continue to build.

Its likely the RBNZ's forward estimates of the output gap will be revised lower from the relatively high-water mark reached in May. The May 2023 output gap profile marked the low tide mark in the chart below and could be consistent with a mark down in GDP of 0.5-1.0% range through the balance of 2024 (and perhaps a 0.25-0.5% increase in forecasts of the unemployment rate). What Would RBNZ Need to See to Start Cutting?_2

What Would RBNZ Need to See to Start Cutting?_2

But we doubt that the changes in the risks in the activity outlook alone would have justified such a dovish tilt. The RBNZ's growth forecasts had already been marked down a lot in May and were not especially optimistic. Rather it's the additional confidence they seem to have on the inflation outlook – and particularly the near-term inflation profile – that seems particularly prominent. The weaker growth expectations help increase confidence that medium term inflation will move towards 2% – which likely remains a core goal of the RBNZ. But its that confidence that inflation will nudge below 3% relatively soon that will be giving them the confidence to move earlier. And it probably explains why the RBNZ's language focuses on "tempering" restriction as opposed to pumping the accelerator to boost growth. This latter point is likely important in understanding the pace and extent of the easing profile once started.

What scenarios could see the RBNZ tempering restriction in the next 6 months?

Here we discuss some more specific data hurdles we think need to be crossed to begin reducing restriction, recognizing that there are also other key indicators (both domestic and abroad) that will impinge on the assessment of the domestic policy outlook:

For easing to begin in August, we would likely need to have seen the following:
- A significant broad-based downside surprise in the Q2 CPI on 17 July (WBC forecast 0.6% qoq/3.5% yoy). The surprise would need to be sufficient to give confidence that future quarterly CPI outcomes will soon sit close to historic norms. This implies a need to see significant downside surprise in the non-tradables component of the CPI (WBC forecast 0.8% qoq/5.3% yoy) that is itself broad-based and consistent with excess capacity flowing through to lower core inflation pressures;
- A significant upside surprise (perhaps close to 5%) in the unemployment rate in the Q2 labour market data on 7 August (WBC forecast 4.6%), and clear signs that wage inflation is dissipating more quickly than expected (WBC forecast 3.5% annual total private sector LCI);
- Further evidence that Q2/Q3 GDP growth is significantly weaker than current forecasts (WBC -0.2 qoq perhaps with some downside risks).

A first easing to occur at the October meeting, would likely require:
- The RBNZ to have foreshadowed some probability of an October easing at the August Statement and a much larger probability of a November easing;
- A moderate downside surprise in the Q2 CPI on 17 July, including the non-tradables component. This should be sufficient to suggest some additional and ongoing progress in reduced core inflation pressures;
- A significant upside surprise in the unemployment rate in the Q2 labour market data on 7 August, and clear signs that wage inflation is dissipating more quickly than had been expected;
- Confirmation of a marked decline in activity in the Q2 GDP report on 20 September (WBC forecast -0.2 qoq – perhaps with downside risks);
- More evidence of weak activity, expanding spare capacity and easing inflation indicators in the Q3 QSBO on 1 October;
- Signs that tax cuts in late July aren't significantly increasing economic momentum or reducing excess capacity unduly.

For a first easing to occur at the November meeting, we would likely need to have seen the following:
- Sufficient broad-based weakness in the Q2 and Q3 CPIs (17 July and 17 October), including in the non-tradables component of the CPI that suggest that inflation is clearly on track to move close to the midpoint of the target in 2025 (WBC Q3 forecasts 1.1% qoq total/1.4% qoq non-tradables);
- A moderate upside surprise in the unemployment rate in the Q2 and Q3 labour market data on 7 August and 6 November respectively (WBC Q3 forecast 4.9%), and signs that wage inflation is dissipating more quickly than had been expected;
- Confirmation of a decline in activity in the Q2 GDP report on 20 September; and More evidence of weak activity, expanding spare capacity and easing inflation indicators in the Q3 QSBO on 1 October;
- Signs that tax cuts in late July were not leading to a greater lift in household spending than the RBNZ had expected.

For the first easing to occur at the February 2025 meeting, we would expect to see something like our current Economic Overview outlook to evolve with a focus on the inflation outlook in particular.

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Glendon

Economic

Nordstrom, Inc. (NYSE: JWN) is a well-known American luxury department store chain that has been a fixture in the retail industry for over a century. Founded in 1901, the company has weathered numerous economic cycles and retail industry transformations. This comprehensive review will examine Nordstrom's current stock performance, financial health, market position, and future prospects to provide investors with a thorough understanding of JWN as an investment opportunity.

Stock Performance and Valuation

As of the latest data, Nordstrom's stock is trading at $21.25, which is 73.5% below the estimated fair value according to some analysts. This significant undervaluation could potentially indicate an attractive entry point for investors, but it's crucial to understand the factors contributing to this discrepancy.

Over the past year, JWN has shown modest growth, with a 3.01% increase in stock price. However, this performance lags behind both the broader market and the US Multiline Retail industry, which returned 20.5% and 39.1% respectively over the same period. This underperformance raises questions about Nordstrom's ability to capitalize on the overall positive trends in retail.

Looking at longer-term performance, JWN has struggled, with a 33.22% decline over the past five years. This suggests that the company has faced significant challenges in adapting to changing consumer preferences and the shift towards e-commerce.

Financial Health and Growth Prospects

Nordstrom's financial health presents a mixed picture. The company's earnings grew by an impressive 1352.1% over the past year, indicating a strong recovery from previous challenges. However, this growth rate is likely unsustainable in the long term and may be partly attributed to the low base effect following the pandemic-induced slump.

Looking forward, analysts forecast earnings growth of 15.9% per year, which is more modest but still represents a positive outlook. This projected growth rate suggests that Nordstrom is expected to continue its recovery and potentially improve its market position.The company's financial health score of 4/6 indicates a relatively stable financial position, though there is room for improvement. Nordstrom's debt levels and cash flow generation will be crucial factors to monitor in assessing its long-term financial stability.

Competitive Landscape and Market Position

Nordstrom operates in the highly competitive retail sector, facing challenges from both traditional department stores and e-commerce giants. The company's focus on luxury and high-end fashion has helped differentiate it from some competitors, but it also exposes Nordstrom to fluctuations in consumer discretionary spending.

One of Nordstrom's strengths is its customer loyalty program, which accounted for 70% of total sales in Q1 2024. This high level of loyalty sales demonstrates the company's ability to retain customers and generate repeat business, which is crucial in the retail industry.

The company is also expanding its physical presence, with plans to open 22 new Rack locations this year. These off-price stores have been performing well and could be a key driver of future growth. However, Nordstrom must balance this expansion with the ongoing shift towards online shopping.

Challenges and Risks

Despite some positive indicators, Nordstrom faces several challenges. The company reported a Q1 adjusted EPS loss, with net sales growth more than offset by a profitability miss. Gross margins were under pressure due to higher loyalty activity, inventory reserves, and external theft in the transportation network.

The structural challenges within the department store sector continue to pose risks to Nordstrom's sales and profitability. The company must navigate the ongoing shift to e-commerce while maintaining the appeal of its physical stores.

Insider Activity and Ownership

Recent news suggests that Nordstrom's founding family is exploring options to take the company private. This development could significantly impact the stock's future performance and presents both opportunities and risks for current shareholders. If a privatization deal materializes, it could potentially offer a premium to the current stock price, but it also introduces uncertainty about the company's long-term direction.

Analyst Opinions and Price Targets

Analyst consensus on Nordstrom stock is currently a "Moderate Sell," with a price target of $18.89, suggesting a potential 11.89% downside from current levels. This bearish outlook reflects the challenges facing the company and the broader retail sector.However, it's worth noting that some analysts have recently raised their price targets for JWN. For example, Evercore ISI increased its target from $17 to $19, while both BofA and Barclays raised their targets from $15 to $18. These revisions suggest that some analysts see potential improvement in Nordstrom's prospects.

Conclusion

Nordstrom stock presents a complex investment case. On one hand, the company's current valuation appears attractive, and there are signs of recovery and growth in certain areas of the business. The strong customer loyalty program and expansion of Rack stores are positive factors that could drive future growth.

On the other hand, Nordstrom faces significant challenges, including structural issues in the department store sector, margin pressures, and the need to balance physical store expansion with e-commerce growth. The company's underperformance compared to the broader market and retail sector over the past few years is a concern for potential investors.

For investors considering JWN, it's crucial to weigh these factors carefully. The potential privatization by the founding family adds another layer of complexity to the investment decision. While this could result in a short-term gain for shareholders if a premium is offered, it also introduces uncertainty about the long-term prospects for public investors.

Ultimately, Nordstrom stock may be most suitable for value-oriented investors who believe in the company's ability to navigate the challenging retail landscape and return to consistent profitability. However, given the current analyst consensus and the challenges facing the company, more conservative investors may prefer to wait for clearer signs of sustainable improvement before considering an investment in JWN.

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Alex

Economic

A Reuters poll of economists had forecast exports would grow 8.0% by value and imports would rise 2.8%, compared with 7.6% and 1.8%, respectively, in the previous month.

Stronger-than-expected exports have been one of the few bright spots for an economy otherwise still struggling for momentum despite official efforts to stimulate domestic demand following the pandemic. A prolonged property slump and worries about jobs and wages are weighing heavily on consumer confidence.

Still, as the number of countries considering stepping up curbs on Chinese goods increases, so too does the pressure on its exports to prop up progress towards the government’s economic growth target for this year of around 5%.

China’s trade surplus grew to $99.05 billion, compared with a forecast of $85 billion and $82.62 billion in May. The United States has repeatedly highlighted the surplus as evidence of one-sided trade favouring the Chinese economy.

Washington in May hiked tariffs on an array of Chinese imports, including quadrupling duties on Chinese electric vehicles to 100%. Brussels last week confirmed it would impose tariffs on EVs as well, but only up to 37.6%.

Chinese exporters are also on edge heading into U.S. elections in November in case either major party tips fresh trade restrictions.

Turkey last month announced it would impose a 40% additional tariff on Chinese-made EVs, and Canada said it was considering curbs.

Meanwhile, Indonesia plans to impose import duties of up to 200% on textile products, which come mainly from China; India is monitoring cheap Chinese steel; and talks with Saudi Arabia over a free trade agreement have reportedly stalled over dumping concerns.

Analysts expect China to roll out more policy support measures in the short term, and a government pledge to boost fiscal stimulus is seen helping kick domestic consumption into a higher gear.

Economists and investors are awaiting for the Third Plenum to be held on July 15-18, with hundreds of China’s top Communist Party officials gathering in Beijing for a meeting that comes every five years.

Source:Reuters

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Samantha Luan

Economic

Cryptocurrency

Former U.S. President Donald Trump has been confirmed as a keynote speaker at the Bitcoin 2024 conference in Nashville, Tennessee.

Bitcoin conference 2024

This prominent event, renowned as one of the largest Bitcoin conferences globally, is scheduled to take place from the 25th to the 27th of July.

The announcement was made by the conference organizers, ‘The Bitcoin Conference’, through an X (formerly Twitter) post, which stated, Donald Trump Will Win, Help Bitcoin Reach $150K In 2025_1

Donald Trump Will Win, Help Bitcoin Reach $150K In 2025_1

Voting postponed

This event coincides with the House of Representatives postponing their vote to override President Joe Biden’s veto on the SEC’s anti-crypto rule, SAB 121.

Originally set for the 10th of July, the vote has been rescheduled to the 11th of July, at approximately 10:30 AM.

The delay followed an urgent letter from President Biden, prompting the House to defer the vote. However, the specifics of the letter are still unknown.

Expressing frustration on the matter, Representative Patrick McHenry, a vocal critic of the SEC’s rule, stated, “We should not be doing business this way.”

Trump vs. Biden

These contrasting actions by the two presidential candidates highlight the divide among crypto voters.

On one side, Trump’s recent pro-crypto move aligns with his supportive stance, while on the other, Biden continues to take a harsh stance towards cryptocurrency as the election approaches.

Remarking on the same, The Bitcoin Therapist took to X and said, “Donald Trump is going to win the election and #Bitcoin is going to 150K next year. Nothing stops this train.”

Impact on memecoin and prediction market

This news also had a significant impact on the crypto meme market. At press time, Trump-inspired memecoin Doland Tremp was up by 2.4% in the past 24 hours.

Conversely, the Biden-inspired memecoin Jeo Boden was down by 16.7% in the same period, according to CoinGecko.

Additionally, Polymarket prediction market data on the “Presidential Election Winner 2024” showed Trump leading with 62%, while Biden dropped from 17% to 13%, less than Kamala Harris who stood at 14% in the past 24 hours.

Source:Ambcrypto

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Cohen

Stocks

Four out of every five stocks in the S&P 500 index climbed, though pullbacks for Nvidia, Microsoft and a handful of other highly influential companies masked that underlying strength. Those giants have been the market’s biggest winners amid a frenzy around artificial-intelligence technology, causing critics to say they had become too pricey, and they helped drag the S&P 500 down 0.9% from its all-time high set a day before.

The drops for Big Tech stocks also pulled the Nasdaq composite down 2% from its own record. The drops broke seven-day winning streaks for both the S&P 500 and Nasdaq composite. The Dow Jones Industrial Average, which has less of an emphasis on tech, rose 32 points, or 0.1%.

The direction was decidedly upward for the majority of stocks on Wall Street, particularly housing-related companies, real-estate owners and others that benefit from easier interest rates. SBA Communications, which owns towers and other sites used for wireless communications infrastructure, jumped 7.5% for the biggest gain in the S&P 500.

Smaller companies that have lagged behind the market’s behemoths for a while were also strong, and the Russell 2000 index of smaller stocks leaped 3.6% to lead the market decisively. The shift is encouraging to some market watchers, who see it as healthier when more stocks are participating in a rising market instead of just an elite, dominant 1%.

The day’s action was even stronger in the bond market, where yields tumbled as traders built bets for the Federal Reserve to soon begin lowering its main interest rate. It’s been sitting for nearly a year at its highest level in more than two decades.

Wall Street wants lower interest rates to release pressure that’s built up on the economy because of how expensive it’s become to borrow money to buy houses, cars or anything on credit cards. Fed officials, though, have been saying they want to see “more good data” on inflation before making a move.

Wall Street saw Thursday’s report, which showed milder price increases than expected from a year earlier for gasoline, cars and other things U.S. consumers bought during June, as providing just that.

“One word: pivotal,” said Lindsay Rosner, head of multi-sector investing within Goldman Sachs Asset Management. “With three inflation prints between this morning and September’s Fed meeting, today’s print was crucial in helping the Fed gain confidence inflation is still moving in the right direction.”

Following the report’s release, Treasury yields tumbled immediately. The yield on the 10-year Treasury dropped to 4.20% from 4.28% late Wednesday and from 4.70% in April. That’s a major move for the bond market and provides a big lift for stock prices.

Lower yields helped real-estate owners and utilities lead the way in the stock market. Falling bond yields make those stocks’ relatively high dividends more attractive to investors seeking income.

Real-estate investment trusts in the S&P 500, including SBA Communications, jumped 2.7% for the biggest gain among the 11 sectors that make up the index. Utility stocks were close behind with a gain of 1.8%.

Homebuilders were also strong on hopes that lower mortgage rates will juice the industry. D.R. Horton climbed 7.3%, and Lennar rose 6.9% for some of the biggest gains in the S&P 500. Mohawk Industries, which makes flooring for homes, jumped 7.4%.

Besides hopes for coming cuts to interest rates, expectations for strong profit growth have also pushed the U.S. stock market to its records. Analysts expect S&P 500 companies to deliver their best overall growth in more than two years this upcoming reporting season, according to FactSet, but it’s getting off to a mixed start.

Delta Air Lines lost 4% after reporting slightly weaker revenue and profit for the spring than analysts expected. The airline said demand is strong for summer travel, but it also gave a profit forecast for the current quarter that fell short of Wall Street’s estimates.

Tesla fell 8.4% to give back some of the gains from an 11-day romp where the electric-vehicle maker’s stock had soared 44%. It and all the other stocks in the group that’s come to be known as the “Magnificent Seven” fell for the day.

Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla have been behind the bulk of the S&P 500’s returns for more than a year because their fortunes seemed to rise regardless of the economy’s strength or where interest rates were.

All told, the S&P 500 fell 49.37 points to 5,584.54. The Dow rose 32.39 to 39,753.75, and the Nasdaq composite dropped 364.04 to 18,283.41.

In stock markets abroad, Japan’s Nikkei 225 rose 0.9% to set another all-time high. Indexes were also strong across much of the rest of Asia and Europe.

Source:AP

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FastBull Featured

Data Interpretation

The U.S. Bureau of Labor Statistics released the June CPI data on July 11.

Headline CPI rose 3% year-on-year in June, lower than the expected 3.1%. It declined 0.1% month-on-month, marking the first negative reading since May 2020.

Core CPI rose 3.3% YoY in June, the lowest level since April 2021, also lower than the expected 3.4%. It was up 0.1% on a MoM basis, being its lowest level since August 2021.

Airline fares, used cars and trucks, as well as communications service indices all declined over the month. The housing index rose 0.2% and the rent index increased 0.3%. The gasoline index fell 3.8% in June, following a 3.6% decline in May, offsetting the impact of higher housing prices. It was the main reason for the slowdown in June CPI. Housing inflation, especially rental prices, has been key to the reduction in core inflation. The fall in housing price increases this time sent a positive signal to the market.

The June inflation eased more than the market expected, continuing the recent trend of slowing price increases. It further proves that inflation has resumed its downward trend after the "bumps" seen at the beginning of the year, paving the way for the Federal Reserve to cut interest rates in September.

At the same time, the unemployment rate climbed to 4.1% from 3.7% seen at the end of last year, according to last week's non-farm payrolls report and Powell's congressional testimony this week, which further confirmed the cooling of the labor market. The potential source of high inflation has waned. Moreover, with the recent continuous weakness in the U.S. economic data, the need for the Fed to start cutting interest rates in September has grown. Once the Fed begins to cut interest rates, the probability of two rate cuts this year will increase as well.