Daily Market Analysis - THURSDAY JULY 13, 2023

Key News:

UK - GDP (MoM) (May)
USA - Initial Jobless Claims
USA - PPI (MoM) (Jun)

Despite relinquishing some of its gains, the Dow Jones Industrial Average concluded Wednesday's trading session on a higher note. This positive finish was primarily attributed to a decline in Treasury yields and a surge in the tech sector, fueled by data indicating the slowest inflation increase in more than two years. The market sentiment has been uplifted by optimism that the forthcoming rate hike, scheduled for later this month, could potentially mark the conclusion of the tightening cycle.

The Dow Jones Industrial Average experienced a 0.25% climb, translating to a gain of 86 points. Meanwhile, the Nasdaq witnessed a robust increase of 1.2%, and the S&P 500 displayed a notable rise of 0.74%.

DJI indices daily chart

Nasdaq indices daily chart

S&P500 indices daily chart

In June, the consumer price index (CPI) registered a modest uptick, rising by 0.2% following a 0.1% increase in May. Additionally, the annual inflation rate eased from 4% to 3%, reaching its lowest point since March 2021. These figures suggest a reduced level of price pressures in the economy.

While there remains an expectation that the Federal Reserve will proceed with a rate hike later this month, the outlook for additional rate increases beyond July becomes less certain. The uncertainty stems from the possibility of upcoming economic data revealing a continued deceleration in inflation.

US Consumer Price Index (CPI)

Jefferies, in a recent note, highlighted the importance of upcoming economic indicators in determining the trajectory of rate hikes. If indicators such as the Employment Cost Index on July 28, along with employment and inflation data released in August, continue to exhibit a slowdown similar to the recent Consumer Price Index data, it suggests that the rate hike scheduled for July could potentially mark the conclusion of the current cycle.

In line with this sentiment, major technology companies, including Google (NASDAQ: GOOGL), Microsoft (NASDAQ: MSFT), and Meta Platforms Inc (NASDAQ: META), experienced a rebound following a recent downturn. This recovery was fueled by a significant decline in Treasury yields, driven by the expectation that the Federal Reserve's rate hikes are nearing their conclusion.

GOOGL stocks daily chart

MSFT stocks daily chart

META stocks daily chart

Microsoft's shares surged by over 1% as the tech behemoth made significant strides in the completion of its $69 billion acquisition of Activision Blizzard Inc (NASDAQ: ATVI), the renowned game developer responsible for the popular Call of Duty franchise. The acquisition received a boost as a Federal judge dismissed the Federal Trade Commission's request to delay the deal, citing insufficient evidence to support claims of potential competition harm. This favorable development played a crucial role in driving Microsoft's strong performance in the market.

US Dollar Currency Index daily chart

The sell-off of the US dollar gained momentum after the release of the CPI data, leading to a rapid approach towards the 100 level on the dollar index. This consistent and significant movement has positive implications for global inflation dynamics. A weaker US dollar tends to drive down energy and raw material prices, which are often denominated in US dollars. Consequently, lower prices for these commodities can help alleviate inflationary pressures on a global scale. In contrast, a strengthening US dollar contributes to inflationary pressures worldwide. Therefore, the depreciation of the US dollar can provide relief in the face of such pressures.

EUR/USD daily chart

In the currency markets, notable movements were observed. The EUR/USD pair experienced a surge, reaching the 1.1150 level, indicating a strengthening of the Euro against the US dollar. Similarly, the GBP/USD pair surpassed the significant 1.30 level, signaling a rise in the British pound against the US dollar. Conversely, the USD/JPY pair extended its decline, falling below the psychological level of 140, implying a weakening of the US dollar against the Japanese yen. These fluctuations highlight the dynamic nature of the currency markets and the interplay between different currency pairs.

USD/JPY daily chart

The anticipated release of the Producer Price Index (PPI) figures for June today is expected to provide further insight into the global economy's disinflationary trend. Forecasts suggest a significant deceleration in the headline PPI, dropping from 1.1% in May to 0.4% in June. The core PPI is also projected to experience a more modest slowdown, declining from 2.8% to 2.6%.

The weakening figures from the PPI may have implications for future Consumer Price Index (CPI) data, indicating a continued disinflationary environment. This reinforces the notion that the forthcoming rate hike in the United States will likely be the final one in the current cycle.

In summary, the June PPI numbers are expected to confirm the prevailing disinflationary trend in the global economy. The projected slowdown in PPI figures suggests potential effects on future CPI data and supports the belief that the upcoming rate hike will be the last one.