A mild US inflation report has reinforced market expectations that the Federal Reserve will not need to raise interest rates next month, keeping equity markets near all-time highs. As of the latest update, Dow futures are up 0.30%, S&P 500 futures are up 0.22%, and Nasdaq futures are up 0.12%. The MSCI global stock index has edged up 0.10%.
In Europe, the pan-European Stoxx 600 index is up 0.2%, with the technology sub-index gaining 0.13%. The S&P 500 closed 0.17% higher on Thursday at 7,445.72 points, following a record high of 7,517.12 points last week. Investors are digesting the benign inflation data, which was largely in line with expectations and has eased some concerns about the Fed tightening policy further.
AI Trading Recovers Momentum
Artificial intelligence trading regained momentum on Thursday, with South Korea's KOSPI index surging 4% into a technical bull market. Chipmakers Samsung Electronics and SK Hynix both saw their shares rise over 4%. In Hong Kong, Lenovo Group shares jumped 22% after the company reported revenue that exceeded market expectations.
However, some caution remains. Cisco Systems shares fell 4.1% in pre-market trading after its earnings report failed to satisfy investors. Cerebras Systems saw its stock plunge 17% due to a decline in hardware business sales. Jefferies economist Mohit Kumar noted that the earnings season for AI infrastructure companies has been strong, with no signs of capital expenditure slowdown. He stated that the firm maintains an overweight position on the AI sector, adding that ample cash liquidity in the market and the expectation that the Fed will not raise rates continue to support risk assets.
Oil Prices Extend Winning Streak
Brent crude is trading near $88 per barrel, having gained 12% over the past six sessions. This rally is driven by a lack of confidence in the progress of reopening the Strait of Hormuz. The US and Iran have traded blame over the reopening of the strategic waterway, with the US accusing Iran of failing to meet its obligations, while Iran claims the US has not fulfilled its promise to end its blockade of Iranian ports. The Strait of Hormuz management authority stated on social media platform X that the strait remains blocked until Iran's conditions are met.
Meanwhile, data shows US commercial crude oil inventories recorded their largest weekly increase since January 2023. The Organization of the Petroleum Exporting Countries (OPEC) has also further cut its forecast for global oil demand growth in 2026. MUFG analyst Soojin Kim commented that the progress of shipping resumption through the Strait of Hormuz will remain a key catalyst for oil prices, with tight global supply continuing to provide support despite high prices beginning to impact demand.
CPI Data Cools Rate Hike Expectations
The mild US inflation data has given the Federal Reserve more room to keep interest rates unchanged, even with energy prices remaining high. Richard Flax, Chief Investment Officer at Moneyfarm, said the latest report gives the Fed sufficient operational flexibility if they decide to hold rates steady in September, noting that the inflation data is not bad considering the recent oil price shock. Data released on Wednesday showed the US Consumer Price Index (CPI) rose 0.2% month-on-month in July, in line with economists' expectations. A key core inflation measure recorded its mildest pace since March 2021.
Treasury Yields Rise Across the Board
Despite the inflation data, concerns about sticky inflation and the widening US fiscal deficit are keeping long-term Treasury yields elevated. US Treasuries are broadly higher, with the rate-sensitive 2-year yield falling 2 basis points to 4.18%. The US 30-year bond auction on Thursday is expected to face the highest funding costs in 25 years. This follows a 42-billion-dollar 10-year Treasury auction that yielded the highest rate since 2007. Commerzbank analyst Hauke Siemssen noted that the new 10-year note auction saw the highest yield since 2007 but also attracted solid investor demand. The market is now focusing on the US Producer Price Index (PPI) data due later today. A mild PPI reading would further increase the likelihood of the Fed holding policy steady next month.
UK government bond yields were broadly stable after the release of second-quarter GDP data, which showed the economy grew by 0.4%, slightly slower than the first quarter's 0.6% but in line with economists' expectations. The 10-year gilt yield edged down to 4.961%. Richard Flax of Moneyfarm noted that while the pace of UK economic growth has slowed from the strong start to the year, the economy's resilience still exceeds many expectations.
US Dollar Strengthens Amidst Iran Standoff
In other markets, the US dollar rose to a near two-week high due to the ongoing standoff in Iran. The dollar index, which measures the greenback against a basket of currencies including the yen and euro, was up 0.32% at 100.01, after touching 100.08, its highest level since July 31. The CPI data had briefly weakened the dollar and lowered market expectations for a September rate hike. However, Commerzbank analyst Michael Pfister viewed the dollar's decline as a temporary reaction, part of a continuing disinflation trend partly influenced by one-off factors. The market believes high energy prices will put more pressure on the eurozone and Japanese economies, both of which are major energy importers, while the US economy is considered relatively less vulnerable to oil price shocks.
The Japanese yen was largely stable around 159.39 against the dollar, following signals from Prime Minister Shigeru Ishiba's government of support for the Bank of Japan's recent rate hike. According to sources, the BOJ's next policy adjustment could come as soon as September or October. The Australian dollar edged down to $0.7050. In Sydney, Reserve Bank of Australia Assistant Governor Christopher Kent stated at a Reuters NEXT event that further tightening of monetary policy remains a risk, noting that upside risks to inflation persist and "many things" need to go in the right direction to avoid another rate hike.
Bitcoin edged higher after the US inflation data, rising 0.5% to $63,833 according to LSEG data. Deutsche Bank analysts noted that while the CPI data was in line, two consecutive months of milder core inflation, combined with last week's weak employment report, have reduced the pressure on the Fed to act immediately in September. However, the market is still fully pricing in a 25-basis-point rate hike by the end of the year, and ongoing tensions in the Middle East mean investors must remain cautious.
Gold Prices Ease
Gold prices edged lower during early European trading after a gain in the previous session. The metal is still up about 3% for the week. MUFG's Soojin Kim commented that the 0.1% month-on-month rise in the US CPI suggests that the inflationary pressure from the earlier energy price shock is easing, while recent labor market weakness further reduces the need for immediate tightening. The market is now looking to the US PPI data later in the day for further confirmation that inflation pressures are subsiding.
Stock Movers
Tapestry, the parent company of Kate Spade and Coach, saw its shares fall 7% after reporting a weaker-than-expected fourth-quarter earnings. The company reported earnings per share (EPS) of $1.32 on revenue of $1.88 billion, slightly above the FactSet consensus of $1.28 EPS and $1.87 billion revenue. The company raised its quarterly dividend from $0.40 to $0.4625 per share.
Yeti, a manufacturer of coolers and drinkware, saw its shares fall nearly 4% after reporting mixed second-quarter results. The company's adjusted EPS of $0.67 beat the FactSet consensus of $0.54, while revenue of $483.9 million was only slightly above the $483.8 million estimate.
The European footwear company Birkenstock saw its shares surge 10% after reporting quarterly revenue and adjusted EBITDA that both exceeded expectations. The company also indicated that its full-year revenue and adjusted EBITDA are expected to be at the upper end of its previously issued guidance range.
Bullish shares rose 1% following a strong second-quarter report. The company's revenue of $92.6 million exceeded the FactSet analyst estimate of $87.4 million. The company raised its full-year guidance for subscription, services, and other revenue.
JD.com shares fell about 4% in US trading, despite reporting earnings and revenue that surpassed expectations. The company's adjusted EPS of RMB 6.29 beat the consensus estimate of RMB 5.61. Revenue fell to RMB 346.4 billion year-on-year but still exceeded the analyst estimate of RMB 342.33 billion.
Battery maker EnerSys saw its shares jump 13% after quarterly earnings and revenue significantly exceeded Wall Street expectations. The company reported first-quarter adjusted EPS of $3.66, well above the FactSet estimate of $2.84, and revenue of $935.6 million, surpassing the expected $928 million. Its second-quarter EPS guidance also came in above expectations.
Discount grocery chain Grocery Outlet shares rose 9% after reporting second-quarter EPS of $0.20, beating the analyst estimate of $0.13, and revenue of $1.19 billion, which exceeded the consensus estimate of $1.17 billion.
Fast-food chain Jack in the Box shares rose over 6% after reporting better-than-expected fiscal third-quarter results, with EPS of $0.96 topping the FactSet estimate of $0.88.
Shares of Red Robin Gourmet Burgers moved higher by nearly 4% after its second-quarter results exceeded analyst expectations. The company reported adjusted EPS of $0.12 on revenue of $277.6 million, compared to market expectations of breakeven and $265.8 million in revenue.
Photonics technology company Coherent shares fell 5%. Its fourth-quarter adjusted gross margin of 40.2% was largely in line with the StreetAccount consensus of 40%. The company's first-quarter earnings and revenue guidance were above analyst estimates.
AI chip maker Cerebras Systems shares plunged nearly 18% after reporting second-quarter revenue of $180 million, below the LSEG consensus of $194 million.
Secondary ticketing platform StubHub shares fell nearly 17%. The company reported a second-quarter adjusted gross margin of 82.2%, below the StreetAccount estimate of 84.3%, and maintained its full-year adjusted EBITDA outlook.
Cisco shares dropped 6%. The company's fourth-quarter adjusted gross margin of 66.3% slightly exceeded the market consensus of 66%.
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