September E-Mini S&P 500 futures (ESU23) recorded a morning gain of +0.64%, while Sep Nasdaq 100 E-Mini futures (NQU23) surged by +1.03%.
The stock indexes have shown a positive trend this morning, driven by signs of easing price pressures in the United States. The Q2 employment cost index rose at its slowest pace in two years, and the U.S. Jun PCE core deflator, which is the Federal Reserve’s preferred measure of inflation, rose less than expected. The overall market received a boost from the strength in technology stocks, particularly with Intel’s pre-market trading showing an impressive increase of over +8% after reporting better-than-expected Q2 revenue.
U.S. Jun personal spending saw a robust rise of +0.5% m/m, surpassing expectations of +0.4% m/m. However, Jun’s personal income had a weaker increase of +0.3% m/m, falling short of expectations of +0.5% m/m.
The U.S. Jun PCE core deflator, measuring inflation, eased to +4.1% y/y, a decline from +4.6% y/y in May. This result was better than expected and marked the slowest pace of increase in 1-3/4 years.
On the other hand, the U.S. Q2 employment cost index showed a slower growth rate of +1.0% (q/q annualized), compared to expectations of +1.1%. This figure represents the smallest pace of increase in 2 years.
Currently, the market reflects an 18% probability of a +25 bp rate hike at the September 20 FOMC meeting.
Global bond yields are experiencing mixed movements. The 10-year T-note yield has fallen from a 2-1/2 week high of 4.038% and is down by -2.8 bp to 3.971%. Meanwhile, the 10-year German bund yield rose to a 2-week high of 2.585%, showing an increase of +0.2 bp at 2.476%. Additionally, the 10-year UK Gilt yield rose to a 1-1/2 week high of 4.389% and climbed +2.5 to 4.335%.
As for overseas stock markets, they are presenting a mixed picture. The Euro Stoxx 50 is slightly up by +0.12%. China’s Shanghai Composite Index has closed today with a significant increase of +1.84%. However, Japan’s Nikkei Stock Index experienced a modest decline of -0.40%.
In Europe, the Euro Stoxx 50 showed slight gains as European stocks rebounded from early losses. The positive movement came as there were indications of easing price pressures in the Eurozone, particularly after German Jul consumer prices rose less than expected. Initially, global bond yield increases impacted stocks when the Bank of Japan (BOJ) adjusted its yield curve control program and doubled the upper limit on its 10-year yield range to 1.0% from 0.5%. However, the market saw strength in bank stocks, primarily led by a +5% surge in Standard Chartered Plc after reporting Q2 adjusted pretax profit of $1.6 billion, surpassing the consensus of $1.39 billion. Additionally, airline stocks gained momentum after British Airways parent IAG SA and Air France-KLM reported better-than-expected Q2 earnings.
In Germany, Jul CPI (EU harmonized) eased to +6.5% y/y, showing an improvement from +6.8% y/y in Jun and better than expected.
Regarding economic confidence in the Eurozone, it fell to a 9-month low of 94.5 in Jul, weaker than the expected 95.0.
In terms of GDP, Germany’s Q2 remained unchanged q/q, failing to meet expectations of +0.1% q/q. On the other hand, France’s Q2 GDP saw a stronger growth of +0.5% q/q, surpassing expectations of +0.1% q/q.
Moving to China, the Shanghai Composite today rallied to a 2-month high and closed moderately higher. This surge came amid signs that authorities are taking action on policy pledges made at the Politburo meeting. Furthermore, authorities asked China’s largest technology companies to provide case studies of their most successful startup investments in consumer, telecom, and media companies, signaling potential support for such deals after a previous crackdown. Bloomberg News also reported that the China Securities Regulatory Commission consulted securities firms for measures to boost stocks, including a cut in the stamp duty and a slowdown in initial public offerings to improve liquidity.
However, Japan’s Nikkei Stock Index faced a different fate, falling to a 2-week low and closing moderately lower. The retreat occurred after Japanese bond yields spiked when the Bank of Japan tweaked its yield curve control program. The 10-year JGB bond yield surged to a 9-year high of 0.591% following the BOJ’s effective raise of the upper limit of its 10-year JGB yield target to 1.0% from 0.5%. This move caused the yen to climb to a 1-1/2 week high against the dollar, negatively impacting exporter stocks. Additionally, an increase in price pressures weighed on stocks and boosted bond yields after the news showed Tokyo Jul consumer prices rose more than expected. Nevertheless, stocks recovered from their worst levels, and the yen gave up some of its gains after BOJ Governor Ueda clarified that today’s move by the BOJ was not a step towards normalization of BOJ policy and that there is a “long way” before the BOJ raises negative interest rates.
As expected, the BOJ kept its policy balance rate unchanged at -0.1%. The BOJ also maintained its target for 10-year yields at around 0% but stated that the 0.5% ceiling now serves as a reference point. The BOJ also announced it would offer to buy 10-year debt at 1.0% each day, suggesting an effective doubling of the upper target of the yield range.
Finally, Tokyo Jul CPI rose +3.2% y/y, remaining unchanged from Jun and exceeding expectations of +2.9% y/y. Tokyo CPI, excluding fresh food and energy, showed a substantial increase of +4.0% y/y, surpassing expectations of +3.7% y/y and marking the highest level in 40 years.
Featured Image: Freepik @ wirestock
