19 Jul

Global inflationary pressures continue to decline. Today, investors’ focus is on the quarterly reports of Tesla and Netflix

July 19, 2023

By JustMarkets

At Tuesday’s stock market close, the Dow Jones Index (US30) increased by 1.06%, while the S&P 500 Index (US500) added 0.71%. The NASDAQ Technology Index (US100) closed positive by 0.76% yesterday. On Tuesday, stock indices posted strong gains as investors welcomed positive quarterly results from a number of major corporations, including Wall Street banks. At the same time, weaker-than-expected US retail sales data raised the stakes for weakening inflation in the country, which in turn should prompt the Federal Reserve to take a less hawkish stance in the coming months. There is a high probability that the US Fed will end its tightening cycle as early as its July meeting.

Morgan Stanley (MS) jumped by 6% after second-quarter results beat both top and bottom lines forecasts. Charles Schwab Corp (SCHW) topped the growth leaderboard, up more than 12% after posting better-than-expected quarterly results. Quarterly results from companies like Tesla (TSLA) and Netflix (NFLX) are expected today. Tesla’s quarterly results will likely focus on margins following the electric carmaker’s recent price cuts, while Netflix’s quarterly results will focus investor attention on subscriber growth.

Canada’s inflation rate fell to 2.8% from 3.4% year-over-year. Core inflation (which excludes food and energy prices) fell from 3.7% to 3.2% y/y. The sharp decline in inflationary pressures precludes further policy tightening by the Bank of Canada.

Equity markets in Europe were mostly up on Tuesday. Germany’s DAX (DE30) increased by 0.35%, France’s CAC 40 (FR40) gained 0.38% yesterday, Spain’s IBEX 35 (ES35) closed positive by 0.19%, and the UK’s FTSE 100 (UK100) closed up by 0.64%.

ECB officials are becoming less hawkish in their statements. If earlier almost all officials in one voice said about at least two rate hikes of 0.25% at each of them, now the tone of speech has changed, and now some politicians expect one rate hike of 0.25%, and the September decision will depend on incoming data. Apparently, the decline in global inflation, along with weak Eurozone GDP reports, made the officials reconsider their plans for further policy tightening.

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Gold rose sharply yesterday after US retail sales rose less than expected in June, putting pressure on US Treasury yields and the US dollar. The US dollar’s overreaction to lower inflation and retail sales suggests that the market is in no mood to buy the dollar amid a growing view that the Fed is close to ending its tightening cycle. The market expects rate cuts from around mid-2024, with nearly five rate cuts by the end of next year. For gold and silver, this is a fundamental strengthening factor for the coming months.

Crude oil prices rose sharply on Tuesday after Chinese officials said the government would soon implement more pro-consumption policies, as data this week showed the country’s economy barely grew in the second quarter.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) was up by 1.16% for the day, China’s FTSE China A50 (CHA50) decreased by 0.29%, Hong Kong’s Hang Seng (HK50) fell by 1.21%, and Australia’s S&P/ASX 200 (AU200) ended Tuesday positive by 0.42%.

New Zealand’s inflation rate fell from 6.7% to 6% on an annualized basis. Over the last quarter, the consumer price index posted a 1.1% increase, the lowest since the first quarter of 2021. The RBNZ said in its monetary policy review last week that it expects core inflation to fall, although it did not comment on when this might happen. Nevertheless, there will be additional inflationary pressures in the next quarter as the government’s fuel tax and public transport subsidy exemptions expire on July 1.

S&P 500 (F)(US500) 4,554.98 +32.19 (+0.71%)

Dow Jones (US30) 34,951.93 +366.58 (+1.06%)

DAX (DE40)  16,125.49 +56.84 (+0.35%)

FTSE 100 (UK100) 7,453.69 +47.27 (+0.64%)

USD Index  100.04 +0.10 (+0.10%)

Important events for today:
  • – New Zealand Consumer Price Index (q/q) at 01:45 (GMT+3);
  • – UK Consumer Price Index (m/m) at 09:00 (GMT+3);
  • – Eurozone Consumer Price Index (m/m) at 12:00 (GMT+3);
  • – US Building Permits (m/m) at 15:30 (GMT+3);
  • – US Crude Oil Reserves (w/w) at 17:30 (GMT+3).

By JustMarkets

 

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.


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