FX.co ★ Tamer-Than-Expected Inflation Data May Lead To Extended Rally On Wall Street

### U.S. Markets Overview

The major U.S. index futures are signaling a higher open on Thursday, likely continuing the upward trend seen in the previous session. This positive outlook follows the release of a keenly anticipated Labor Department report, which revealed that consumer prices in the U.S. unexpectedly edged slightly lower in June.

The Labor Department reported that its Consumer Price Index (CPI) dipped by 0.1% in June, after remaining unchanged in May. Economists had predicted a 0.1% increase in consumer prices.

The unexpected dip in consumer prices resulted from a substantial drop in gasoline prices, which more than offset ongoing increases in shelter costs. Excluding food and energy, core consumer prices inched up by 0.1% in June, following a 0.2% increase in May. Core prices were anticipated to rise by 0.2%.

Additionally, the annual rate of consumer price growth decelerated to 3.0% in June from 3.3% in May, contrary to economists' expectations of a slowdown to 3.1%. The annual rate of core consumer price growth also decreased slightly to 3.3% in June from 3.4% in May, whereas a constant rate was anticipated.

These slowdowns in annual price growth are fostering optimism that the Federal Reserve may lower interest rates at its upcoming September meeting.

### Market Performance Recap

Following a tepid performance on Tuesday, stocks saw a sharp increase during Wednesday's trading session. The S&P 500 managed to close above 5,600 for the first time ever, driven by broad-based gains. The major averages continued to rise toward the end of the session, closing near their intra-day highs. The Nasdaq surged 218.16 points (1.2%) to 18,647.45, the Dow climbed 429.39 points (1.1%) to 39,721.36, and the S&P 500 gained 56.93 points (1.0%) to 5,633.91.

The rally was partly fueled by strong performances in the technology sector, evidenced by the significant gains in the tech-heavy Nasdaq, which also reached a new record closing high. Much of this strength came after Taiwan Semiconductor (TSM) announced second-quarter sales that far exceeded expectations. Shares of TSM, which supplies chips to AI giants such as Nvidia (NVDA) and Apple (AAPL), spiked 3.5%.

Additionally, optimism regarding the outlook for interest rates ahead of Thursday's crucial inflation data release also played a role. During congressional testimony, Federal Reserve Chair Jerome Powell stated that continued "good data" would enhance the Fed’s confidence that inflation is moving sustainably towards its 2% target, possibly leading to a rate cut.

Powell also cautioned about the risks of keeping interest rates elevated for too long, which could endanger economic growth. "In light of the progress made both in lowering inflation and in cooling the labor market over the past two years, elevated inflation is not the only risk we face," he warned. "Reducing policy restraint too late or too little could unduly weaken economic activity and employment."

### Sector Highlights

Gold stocks saw substantial gains, driving the NYSE Arca Gold Bugs Index up by 2.9%, its highest closing level in over two years, amid increasing gold prices. The Philadelphia Semiconductor Index surged by 2.4%, hitting a new record high, highlighting significant strength in semiconductor stocks. Housing stocks also performed well, with the Philadelphia Housing Sector Index jumping 1.9%.

Brokerage, biotechnology, and pharmaceutical stocks were also notably strong, along with most other major sectors.

### Commodity and Currency Markets

In commodity markets, crude oil futures are climbing $0.44 to $82.54 a barrel, following a $0.69 advance to $82.10 a barrel on Wednesday. Gold futures are surging $28.80 to $2,408.50 an ounce, after a $11.80 rise to $2,379.70 an ounce in the previous session.

On the currency front, the U.S. dollar is trading at 159.00 yen, down from 161.69 yen in Wednesday's New York trading. Against the euro, the dollar is valued at $1.0892, compared to $1.0830 yesterday.

### Asian Markets

Asian stocks reached record highs on Thursday following remarks from Federal Reserve Chair Jerome Powell, who assured that interest rate decisions would be based on economic need, independent of political considerations.Amid growing expectations for a potential rate cut in September, investors are closely monitoring the release of the U.S. CPI report later today for further guidance. Economists predict that U.S. CPI growth on an annual basis has slowed to 3.1 percent in June, down from 3.3 percent in May.

In Asian trading, bonds and the dollar remained largely stable, while gold saw a slight uptick. Oil continued to gain ground following OPEC’s decision to maintain its demand forecast.

Chinese stocks surged in anticipation of upcoming political meetings of the Communist Party and the release of crucial economic indicators by the National Bureau of Statistics on July 15. The Shanghai Composite Index climbed 1.1 percent to 2,970.39.

The Hang Seng Index in Hong Kong jumped 2.1 percent to 17,832.33, buoyed by China's securities regulator imposing new restrictions on short selling.

Japanese markets achieved new highs, driven by investor speculation on U.S. interest rate cuts. The Nikkei 225 Index rose 0.9 percent to 42,224.02, breaking the 42,000 threshold for the first time. The broader Topix Index increased by 0.7 percent, closing at 2,929.17.

In corporate news, Fast Retailing, the company behind Uniqlo, surged 2.3 percent after revising its forecast upwards for a third consecutive year of record profits. Sony saw gains of 3.6 percent, and Sumco soared 5.9 percent.

Contrarily, Japan's core machinery orders fell for the second consecutive month in May, prompting concerns regarding the Bank of Japan’s (BOJ) interest rate policy.

South Korean stocks rose significantly after the Bank of Korea maintained its benchmark interest rate at 3.5 percent for the twelfth consecutive session, signaling a dovish policy shift. The Kospi gained 0.8 percent, closing at 2,891.35.

Australian markets reached a two-month high, with gains led by the mining, energy, and financial sectors. The S&P/ASX 200 Index rose 0.9 percent to 7,889.60, and the All Ordinaries Index mirrored this increase, finishing at 8,133.40.

In New Zealand, the S&P/NZX-50 Index saw a gain of 1.0 percent to 12,058.29, as traders adjusted their expectations for a rate cut.

### Europe

European stocks advanced on Thursday, bolstered by positive economic data from Germany and the U.K. and growing anticipation of a Federal Reserve rate cut in September.

Federal Reserve Chair Jerome Powell reiterated on Wednesday that the U.S. job market is cooling, assuring that the central bank would act as needed, independent of political influences.

In Germany, softer inflation data contributed to speculation around a possible European Central Bank rate cut in September. The consumer price index rose by 2.2 percent in June, down from May’s 2.4 percent, aligning with preliminary data. EU-harmonized inflation also dipped to 2.5 percent from 2.48 percent.

The U.K. economy showed unexpected resilience in May, casting doubts on an August rate cut by the Bank of England. The Office for National Statistics reported a real GDP growth of 0.4 percent, doubling the forecast of 0.2 percent after zero growth in April.

The U.K.'s FTSE 100 Index rose by 0.3 percent; meanwhile, France's CAC 40 Index and Germany's DAX Index both increased by 0.6 percent.

In corporate developments, Hugo Boss gained approximately 2 percent following Frasers Group's increased stake in the German fashion label. Fielmann experienced a 3.5 percent surge after forecasting improved EBT margins for 2024 and 2025. Conversely, Suedzucker dropped 4.3 percent subsequent to reporting a 45 percent decline in first-quarter earnings.

French media conglomerate Vivendi rose 2.2 percent, boosted by JP Morgan's positive outlook. British water company Pennon soared 7.5 percent after appointing an internal candidate as its new CFO, and peer Severn Trent rallied 3 percent on strong early-year performance.

Oil services firm John Wood saw a decline of 1.2 percent following a 6 percent revenue drop for the half-year ending June 30. Hays climbed 1.1 percent, anticipating its full-year profit to be at the lower end of market expectations.

### U.S. Economic Reports

Consumer prices in the U.S. saw an unexpected slight decrease in June, according to a highly anticipated report by the Labor Department. The consumer price index marginally dipped by 0.1 percent in June after remaining unchanged in May. Economists had anticipated a 0.1 percent rise.

Excluding volatile food and energy prices, core consumer prices edged up by 0.1 percent in June, lower than the 0.2 percent increase observed in May. Core prices were expected to rise by another 0.2 percent.The report indicates that the annual rate of consumer price growth decelerated to 3.0 percent in June, down from 3.3 percent in May, which was slightly below the economists' forecast of 3.1 percent. Additionally, core consumer price growth fell to 3.3 percent in June compared to 3.4 percent in May, contrary to expectations that it would remain unchanged.

In another development, the Labor Department disclosed that first-time claims for U.S. unemployment benefits significantly dropped for the week ending July 6th. Initial jobless claims were reported at 222,000, marking a decrease of 17,000 from the previous week's revised figure of 239,000. This was a larger decline than the economists' prediction of 236,000, down from the initially reported 238,000.

The report also highlighted that the four-week moving average, a less volatile measure, decreased to 233,500, down by 5,250 from the prior week's revised average of 238,750.

At 11 am ET, the Treasury Department is set to disclose the details of this month's auction of twenty-year bonds.

Later, at 11:30 am ET, Atlanta Federal Reserve President Raphael Bostic will engage in a discussion on "Economic Inclusion" at the National Credit Union Administration Diversity, Equity, and Inclusion Summit.

Furthermore, at 1 pm ET, the Treasury Department will publish the results of this month's auction of $22 billion in thirty-year bonds.

Simultaneously, St. Louis Federal Reserve President Alberto Musalem will participate in a fireside chat on the U.S. economy and monetary policy at the Little Rock Regional Chamber's Power Up Little Rock event.