The S&P 500 climbed to its highest level since May after a better-than-expected CPI print report.
In recent days, Tesla CEO Elon Musk has said that inflation has peaked and we will see declines in food and energy prices in the next half year. Today the consumer price index came to support Elon’s view on the economy. The June inflation report landed softer than expected, showing a line at the highest pace in inflation since 1981.
The Federal Reserve officials might ease their monetary policy and increase interest rates by 50bp in the next scheduled meeting instead of a 75bp interest hike.
According to PGIM Fixed Income economist Ellen Gaske, the July CPI report was lower than expected. He added that the CPI print suggests a less aggressive interest hike because now the FED can adopt cautious interest hikes.
Experts believe that July’s year-to-year inflation rate will increase by 8.8%, and any higher number will trigger more aggressive interest hikes. Thankfully, the CPI report suggests a small number. The Wall Street index opened lower on Wednesday morning, posting a small decline.
A better-than-expected CPI print pushed the S&P to its highest level since May.
The S&P 500 gained 80 basis points to 4,202.93, while the Nasdaq 100 gained 2.57% to 12,818.99. The Dow Jones industrial average climbed by 500 basis points to 32,281.19 basis points.
The CPI report will be released today by 08:30 AM, and it is expected that the July inflation rate will be at least 8.7%. Compared to June’s 9.1% inflation rate, that’s slightly lower and it’s a sign of improvement.
As for the commodity market, gold increased by 0.9% to $1814 per ounce. On the subject of oil prices, crude oil declined to $89 per barrel.
Outside the U.S, it seems that inflationary pressures are still gaining momentum, including in the European economy. The low shortage of energy resources has caused sharp increases in food and gas prices in Europe. The German CPI report shows a 0.9% increase in July, and things are more likely to increase in the next three months.
Meanwhile, the consumer index in China increased, which shows that inflation hasn’t peaked yet in China. The tension between the U.S and China is rising, and there are talks that China is refusing to respond to the U.S defense department’s calls.
On the subject of the chip-making industry, the U.S. will set a budget to increase the production of semiconductor chips in case of any unwanted development in the future. As for the US dollar, it appears that the changing challenges have had no effect on its market value, which is a good sign. The peer euro/USD hasn’t changed since last week and is still trading at $1.02.
Since 2002, the US dollar has had one of its best-performing months in the last 20 years.
In terms of the market’s future outlook, investors are getting more optimistic after this month’s strong job report and a better-than-expected CPI report.
But in the long term, it’s unsure how likely the Federal Reserve will act, especially when it’s too far from its target CPI rate of 3%.