Fed’s Easing Path to Be Cemented by CPI Release: Market Impact and What to Watch
All eyes are on consumer prices as the July CPI report, due later today, could cement the Federal Reserve’s path toward easing interest rates next month. This follows a tame U.S. producer price release on Tuesday, which showed that the July Producer Price Index (PPI) increased by just 0.1%, lower than expected. On an annual basis, PPI rose 2.2%, down from 2.7% in June.
This softer inflation data has pushed market expectations for a hefty 50 basis point rate cut in September to 53.5%, up from 50% the day before, according to CME’s FedWatch Tool.
The CPI report is expected to show that inflation pressures continue to cool, making it more likely that the Federal Reserve will cut its policy rate, which has remained at 5.25%-5.50% for more than a year. Federal Reserve Chair Jerome Powell has been clear: favorable inflation data is crucial for any decision to cut rates.
Expectations are for the July CPI report to indicate a further decline in inflation, with annual core inflation predicted to fall to 3.2%, its lowest level since April 2021. Meanwhile, headline inflation is forecasted to stay steady at 3.0% annually.
Market Reaction So Far
U.S. stock futures have remained relatively steady ahead of the CPI release. As of 04:00 ET, Dow futures were up 25 points, while S&P 500 futures slipped by 1 point, and Nasdaq 100 futures fell by 6 points. On Tuesday, the main Wall Street indices saw strong gains, with the Dow Jones rising over 400 points, the S&P 500 gaining 1.7%, and the Nasdaq Composite surging 2.4%, all buoyed by the benign producer price data.
Key Corporate Moves
In corporate news, Intel (NASDAQ: INTC) made headlines by selling its 1.18 million-share stake in British chip firm Arm Holdings (NASDAQ: ARM) during the second quarter, as revealed in a regulatory filing. Earlier, Intel announced plans to cut over 15% of its workforce and suspend its dividend, in response to reduced spending on traditional data center semiconductors and a shift toward AI chips.
In another major corporate development, Mars is reportedly preparing to pay $83.50 per share for packaged food giant Kellanova (NYSE: K), a 12% premium over Tuesday’s closing price, valuing the company at more than $30 billion.
Global Outlook: UBS Shines, UK Inflation Ticks Up
Swiss banking giant UBS (SIX: UBSG) posted impressive Q2 earnings with a net profit of $1.14 billion, well above expectations. This comes on the heels of UBS’s formal legal merger with Credit Suisse in May. UBS’s CEO, Sergio Ermotti, highlighted the bank’s strong progress and emphasized that they are on track to meet financial targets, despite a challenging macroeconomic environment characterized by ongoing geopolitical tensions and the upcoming U.S. elections.
Meanwhile, the U.K. also released its July inflation figures, with consumer price inflation rising to 2.2%. This increase, while above the Bank of England’s target, still represents a sharp drop from the 41-year high of 11.1% seen in October 2022.
Oil Markets Stay Strong
Crude prices rose on Wednesday, buoyed by data showing a larger-than-expected draw in U.S. oil stockpiles. The American Petroleum Institute reported that inventories fell by 5.2 million barrels in the week ending August 10th, more than double the anticipated 2 million barrel draw. This points to continued robust demand in the U.S., even as the summer travel season winds down.
Adding to the upward pressure on crude prices are elevated geopolitical tensions in the Middle East. Iran has vowed a strong response following the killing of a Hamas leader late last month, further fueling concerns about oil supply disruptions from the region.
What’s Next? Join Us for Live Market Analysis Tonight
As these critical developments unfold, join us tonight at 7 p.m. for a live market analysis session with Tracks. We’ll dive deep into the implications of the latest CPI data, the Federal Reserve’s potential rate cuts, and how geopolitical tensions are shaping the energy markets. Don’t miss out on insights that could help you navigate the volatility ahead!
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