Major U.S. stock indices ended Thursday’s session with mixed results. The S&P 500 recorded a slight decline of -0.16%, the Dow Jones Industrials closed down by -0.48%, while the Nasdaq 100 showed relative strength, closing with a gain of +0.25%. Investors found themselves navigating a market characterized by diverse performances.
U.S. PCE Deflator Data
The day began with a notable development in the form of the U.S. PCE deflator report. This key metric, often used by the Federal Reserve to gauge inflation, marked a significant milestone. The deflator fell to a post-pandemic low of +2.1%, while the core deflator, which excludes volatile food and energy prices, reached +2.9%. These figures, while largely in line with market expectations, provided some support to the stock markets.
Moreover, the latest figures for July continued to emphasize certain trends. The U.S. Jul PCE deflator, closely watched as the Fed’s preferred measure of inflation, rose by +0.2% on a monthly basis and +3.3% on a yearly basis. These numbers were in line with the market’s expectations. Similarly, the U.S. Jul core PCE deflator, which specifically excludes food and energy prices, increased by +0.2% on a monthly basis and +4.2% on a yearly basis, also meeting market expectations.
However, a closer look at these year-on-year figures revealed an intriguing story. The July PCE deflator, with a +3.3% increase, showed a slight uptick from June’s reading, which stood at a 2-1/4 year low of +3.0%. Despite this small increase, it remains significantly below the four-decade high of 7.0%, recorded in June 2022. Similarly, the July core PCE deflator, at +4.2%, experienced a modest increase from June’s 1-1/4 year low of 4.1%. However, it, too, remained well below the four-decade high of +5.4%, reported in February 2022.
On an even shorter-term basis, over three months, the July PCE deflator indicated a new post-pandemic low at +2.1%. Meanwhile, the core deflator exhibited a similar pattern, falling to +2.9%. These numbers highlight the ongoing nuances within the inflation landscape.
Mixed Bag in Economic Indicators
While the U.S. PCE deflator report provided a focal point for market watchers, other economic indicators offered a mixed bag of insights. July saw U.S. personal spending increase by +0.8% on a monthly basis, slightly surpassing market expectations of +0.7%. This uptick indicated underlying strength in consumer activity. However, July’s personal income growth was somewhat weaker, rising by +0.2% on a monthly basis, compared to the market’s expectations of +0.3% growth.
The weekly U.S. initial unemployment claims report added another layer to the economic narrative. It reported a decline of -4,000 initial claims, bringing the total to 228,000. This figure, although stronger than expectations, hinted at a labour market slightly more robust than anticipated. However, the report also revealed an increase of +28,000 in continuing claims, which measure ongoing unemployment benefits. This rise in continuing claims indicated a labour market that, while not in dire straits, still faced challenges not entirely aligned with expectations.
Dovish Remarks from Atlanta Fed President
In the midst of these economic nuances, Atlanta Fed President Bostic contributed a dovish note. Bostic voiced caution and patience in monetary policy, advocating for the continuation of restrictive policies to shape the economic landscape. He emphasized the need to avoid prematurely tightening policy measures, which could potentially inflict unnecessary economic hardships.
Market Rate Hike Expectations
Market participants are currently factoring in a 12% probability of a +25 bp rate hike at the September 20 FOMC meeting and a 36% likelihood of such a move at the November 1 FOMC meeting. These expectations reflect the ongoing debate within the market about the timing and magnitude of future rate hikes.
Mixed Global Closures
The mixed performances were not confined to the U.S. Overseas stock markets also displayed a mixed picture. The Euro Stoxx 50 ended the day with a decline of -0.42%. China’s Shanghai Composite Index saw a -0.55 % drop, while Japan’s Nikkei Stock Index bucked the trend with a gain of +0.88%. These global market moves highlighted the multifaceted nature of the economic landscape.
Notable Forex Moves
In addition to the broader market dynamics, several individual stocks made significant moves on Thursday:
- Dollar General (DG) experienced a substantial decline of -12.15%. The company revised its earnings forecast for the second consecutive quarter, citing rising labour costs and softer sales trends as contributing factors.
- Salesforce (CRM) emerged as a winner, rallying +2.99% after reporting earnings guidance that exceeded market expectations.
- CrowdStrike (CRWD) also showed strong performance, surging +9.28% following the release of an earnings report that outpaced market forecasts.
- Shopify (SHOP) posted impressive gains of +10.80% after announcing an app integration that would enable Shopify stores to offer “Buy with Prime,” creating synergy with e-commerce giant Amazon.
