Weekly Market Commentary July 8th to July 12th 2024

Fed watchers’ optimism for a September rate cut rose after important inflation data releases this week. The Consumer Price Index (CPI) declined by 0.1% in June, reducing the year-on-year level from 3.3% to 3.0%. Energy prices were a key driver, lower by 2.0%, with gasoline down 3.8%, just in time for the summer driving months. Although new and used vehicle prices ticked down modestly, car insurance was higher by 2.9% in the month, driving average policy prices to an eye popping 19.5% year-on-year increase. Core inflation (excluding food and energy) decreased from 3.4% to 3.3%.

The Producer Price Index (PPI) data on Friday was not as sanguine as CPI. Prices increased by 0.2%, a tick ahead of the consensus forecast. The prior month was revised from -0.2% to 0.0%. Excluding food and energy, the core reading was higher by 0.4%, also exceeding expectations. On the surface, the data shows that producers were not able to pass on these costs to their consumers. A deeper dive into the finer points of the report however, shows a fair amount of the miss coming from the accounting of (often volatile) trade service margins. On a year-on-year basis, PPI was higher by 2.6%, and 3.0% at the core level.

All three major U.S. equity market indices broke through new record highs in the first half of the week before pulling back on a breather taken by the Magnificent Seven stocks in Thursday’s session. At the final closing bell on Friday, the S&P 500 was higher on the week by 0.9%, closing at 5,615. The Dow Jones Industrial Average closed above the 40,000 milestone for the second time in its history.

Expectations for a rate cut in the September meeting increased following the cooler than anticipated CPI report and were nonplussed by the modest uptick in PPI, leading yields lower across the curve. The bellwether 10-Year U.S. Treasury closed the week down by 10 basis points to 4.18%. The spread over the 2-Year ended at -0.27%, modestly closing the gap on curve inversion.

Key economic releases next week include Retail Sales, Housing Starts and Permits and Industrial Production.