U.S. stocks are moving upward, continuing yesterday's rally, as the markets digest the release of the Producer Price Index. Like yesterday’s Consumer Price Index, this inflation report came in lower than expected. The data seems to be dampening expectations that the Fed will have to remain severely aggressive with tightening monetary policy. Treasuries have turned mixed with yields rising on the mid-to-long end of the curve to extend the recent steepening of the yield curve. The U.S. dollar continues to decline following the inflation data, crude oil is trading higher, and gold is losing some ground. In equity news, Dow member Walt Disney Company topped earnings estimates and posted stronger-than-expected subscriber figures, while GSK, Sanofi, and Haleon are extending drops on litigation concerns regarding Zantac. In other economic news, jobless claims continued to climb but by a smaller amount than expected. Asia finished higher and Europe closed mixed, with the global markets digesting the U.S. inflation data.
At 12:53 p.m. ET, the Dow Jones Industrial Average is up 0.6%, the S&P 500 Index is rising 0.5%, and the Nasdaq Composite is gaining 0.2%. WTI crude oil is increasing $2.49 to $94.43 per barrel, and Brent crude oil is advancing $2.36 at $99.76 per barrel. The gold spot price is trading $8.80 lower to $1,804.90 per ounce, and the Dollar Index is dropping 0.2% to 105.00.
Dow member Walt Disney Company (DIS $119) reported adjusted fiscal Q3 earnings-per-share (EPS) of $1.09, above the $0.97 FactSet estimate, as revenues rose 26.0% year-over-year (y/y) to $21.5 billion, north of the Street's forecast of $21.0 billion. DIS added 14.4 million Disney+ subscribers, bringing its total subscriber figure—including ESPN+ and Hulu—to 221 million, which was above analysts' estimates. The company's revenue out of its theme park segment also came in above expectations. DIS also announced a new ad-supported subscription tier for its Disney+ streaming service and said it will raise the price of its direct-to-consumer streaming offers. Shares are trading solidly higher.
Q2 earnings season is heading down the home stretch, and of the 452 S&P 500 companies that have reported thus far, roughly 64% have topped revenue forecasts and approximately 75% have bested profit projections, per data compiled by Bloomberg. Compared to last year, revenue growth is tracking to be up 14.9% and earnings are 8.8% higher.
Schwab's Chief Investment Strategist, Liz Ann Sonders discusses the market environment in her latest article, Both Sides Now: Fed's Dueling Mandates, how July's hot jobs report will likely keep the Fed in a hawkish position, but key to watch moving forward is a continued softening in leading labor and inflation indicators.
In other equity news, shares of GSK PLC. (GSK $35), Sanofi (SNY $43), and Haleon PLC. (HLN $6) are continuing to fall amid concerns about litigation regarding their involvement with antacid Zantac which has been alleged to contain substances that cause cancer.
Wholesale price inflation cooler than expected, jobless claims continue to climb
The Producer Price Index (PPI) (chart), showed prices at the wholesale level in July declined 0.5% month-over-month (m/m), compared to the Bloomberg consensus estimate of a 0.2% gain, and June's downwardly revised 1.0% increase. The core rate, which excludes food and energy, rose 0.2% m/m, below estimates calling for a match of the prior month's unadjusted 0.4% rise. Y/Y, the headline rate was 9.8% higher, south of expectations of a 10.4% gain and compared to the prior month's unadjusted 11.3% rise. The core PPI was up 7.6% y/y last month, below estimates of a 7.7% gain and well south of June's upwardly adjusted 8.4% rise.
Weekly initial jobless claims (chart) came in at a level of 262,000 for the week ended August 6, below estimates of 265,000 but up from the prior week's downwardly revised 248,000 level. The four-week moving average rose by 4,500 to 252,000, and continuing claims for the week ended July 30 increased by 8,000 to 1,428,000, versus estimates of 1,420,000. The four-week moving average of continuing claims rose by 23,750 to 1,399,250.
Treasuries have turned mostly lower, and yields are rising on the mid-to-long end of the curve, thus extending a recent bout of yield curve steepening following the inflation data. However, inversions of the yield curve remain. Persisting inflation pressures have forced the Fed to raise its benchmark interest rate by 75 basis points (bps) for a second-straight meeting last month. Meanwhile, the U.S. dollar is extending yesterday's drop on the cooler-than-expected July inflation data that were released in the past two days. The greenback has come off multi-decade highs as of late.
Schwab's Chief Fixed Income Strategist Kathy Jones discusses in her latest article, The Strong Dollar: Can It Continue?, how a trifecta of factors support the dollar, including the relatively strong performance of the U.S. economy, tightening monetary policy by the Federal Reserve, and safe-haven buying. Kathy notes that these are likely to remain intact into 2023. You can follow Kathy on Twitter: @KathyJones, and check out our latest edition of our Financial Decoder podcast, When Interest Rates Rise, What Should You Do with Bonds?, featuring Kathy Jones.
The yield on the 2-year Treasury note is little changed at 3.18%, while the yield on the 10-year note is increasing 5 bps to 2.84%, and the 30-year bond rate is gaining 8 bps to 3.13%.
Europe mixed following another dose of U.S. inflation data
European equities finished mixed as the markets digested another cooler-than-expected July inflation report out of the U.S., while assessing the economic and monetary policy implications. The U.S. inflation data was in focus with the European economic calendar light today. Inflation has driven aggressive global tightening of monetary policies, but Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, Shortages Have Led to Gluts, how inventory gluts have been bad news for the stocks of companies experiencing them, but could also be indicating an inflation peak, which tends to be an ingredient for market bottoms. You can follow Jeff on Twitter: @JeffreyKleintop. The euro and British pound traded higher versus the U.S. dollar, which continues to fall on the cool inflation reports in the past two sessions. Bond yields in the Eurozone and the U.K. ended the day higher. Earnings continued to pour in for the region and painted a mixed picture.
The U.K. FTSE 100 Index closed 0.6% lower, Germany's DAX Index was down 0.1%, France's CAC-40 Index and Spain's IBEX 35 Index gained 0.3%, Italy's FTSE MIB Index increased 0.7%, and Switzerland's Swiss Market Index finished unchanged.
Asia higher following favorable U.S. inflation data
Stocks in Asia finished higher following yesterday's rally in the U.S. that followed a cooler-than-expected report on consumer price inflation that eased concerns about how aggressive the Fed will remain. The markets also awaited today's report on U.S. producer price inflation to see if inflation may have peaked. In other inflation news, Australia's August inflation expectation over the next 12 months slowed to 5.9% from July's 6.3% rate. Inflation has driven central banks out of the U.S., U.K., Australia, and India to all announce aggressive monetary policy tightening, but Japan and China have held off on moving down the tightening path. Volume was lighter than usual as markets in Japan were closed for a holiday.
Economic concerns in China have been exacerbated by COVID-induced lockdowns, and Schwab's Jeffrey Kleintop notes in his article, China's Yo-Yo Economy, that although an economic rebound in China is underway according to government and private sector data, its economy and stock market may remain volatile.
China's Shanghai Composite Index increased 1.6%, and the Hong Kong Hang Seng Index rebounded 2.4% after yesterday's drop that came on the tech weakness. South Korea's Kospi Index advanced 1.7%, Australia's S&P/ASX 200 Index traded 1.1% higher, and India's S&P BSE Sensex 30 Index gained 0.9%.
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