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Aug 10 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com
EUROPEAN BOURSES HOLD ON TO U.S. CPI BOOST (1150 EDT/1550 GMT)
It may not be the game changer some investors were hoping for, but the weaker than expected U.S. inflation data triggered a substantial bounce on Wall Street which swiftly made its way to equity markets on the other side of the Atlantic.
The pan-European STOXX 600 which was broadly flat all morning, jumped 0.8% after the CPI reading suggested that peak inflation might just be in sight.
European stocks held on to these gains in afternoon trading and ended the session with a 0.9% gain, a moderate rise which suggests there's still some angst remaining on the monetary policy front.
“While a peak in inflation is welcome news, it’s probably not enough to allow the Fed to ease off its tightening or to put recession fears to bed", Mike Bell, a strategist at J.P. Morgan Asset Management, wrote commenting the U.S. indicator.
Most regional bourses and sectors ended higher, but pharmaceuticals underperformed with their index losing 0.8%.
Among its constituents, German biotech Evotec lost over 8% after Morgan Stanley downgraded the stock.
Swiss eye care device maker Alcon slid 6.4% on a 2022 guidance cut, while heavyweights Sanofi and GSK also saw their shares lose 7.8% and 5.4% respectively.
(Julien Ponthus)
RETAIL TRADERS SEE U.S. RECESSION THIS YEAR - CHARLES SCHWAB (1120 EDT/ 1520 GMT)
Nearly three in four retail traders anticipate a recession in the United States will begin this year as the Federal Reserve moves to wean the economy off pandemic-era stimulus measures, according to a survey by Charles Schwab.
However, 69% of those traders expect the recession to only last a year or less, according to the quarterly report, which examines patterns of active users of online brokerages Charles Schwab and TD Ameritrade.
"Many traders are not taking specific action to hedge against a recession," Schwab's head of trading and education Barry Metzger said.
The Fed has been trying to cool prices without tipping the economy over into recession. With U.S. GDP having contracted for two straight quarters, the world's largest economy now fits an often-cited definition of a recession.
However, the National Bureau of Economic Research, which also factors in other economic indicators such as wages and employment, has not declared a recession yet.
Data released on Wednesday showed U.S. consumer prices decelerated in July as gasoline prices dropped sharply.
"There’s still plenty to trouble central bankers... and few will conclude today’s fall quashes the need for further aggressive rate hikes," said Danni Hewson, analyst at investment platform AJ Bell.
(Niket Nishant)
COOL YOUR JETS: CPI, MORTGAGE DEMAND (1050 EDT/1450 GMT)
Data released on Wednesday served up a refreshing gazpacho of cooling inflation and resiliency in the housing market.
The Labor Department's much anticipated consumer price index (CPI) report was the star of the show, and it offered the refreshing news that consumer price growth cooled more than expected in July.
CPI, which measures the prices urban consumers pay for a basket of goods, was unchanged from June and up 8.5% year-over-year, marking a 0.6 percentage point deceleration, thanks in large part to softening commodity prices.
Stripping out volatile food and energy items, so-called "core" CPI rose by 0.3% on a monthly basis - a 0.4 percentage point deceleration - and grew 5.9% from a year ago, repeating last month's print.
Line by line, gasoline prices and airfares tumbled by 7.7% and 7.8% respectively, mitigating price increases in food, housing, drugs, and new cars.
"We’re seeing some a relief in transitory inflation," says Peter Cardillo, chief market economist at Spartan Capital Securities in New York. "Gas prices are coming down, food prices are beginning to stabilize, so that’s good news for the consumer."
"Does this raise the possibility of the Fed changing its tune? I suspect not," Cardillo adds. "We should still see a 50 to 75 basis point (interest) rate hike in September."
But the odds of Powell & Co implementing a third consecutive 75 basis point interest rate hike plunged in the wake of the report. The market now sees a 32% chance of that occurring, down from 68% before the release, according to Fedwatch.
While we're not out of the inflation woods, the notion that peak inflation is in the rear view mirror is gathering steam.
"With the economy much cooler than in 2021, inventory levels higher, and gas prices down in the first ten days of August, inflation is probably past the peak," says Bill Adams, chief economist at Comerica Bank.
A quick glance and year-over-year core CPI along with other major indicators reveals the long downhill trek inflation must follow to approach the Fed's average annual 2% target. Even so, down is down even if the slope is frustratingly gradual:
Now would be an opportune time to drop in on our cranky pal the misery index, which adds headline CPI to the unemployment rate.
The jobless rate, typically the cause of most of the misery index's pain, is now at pre-pandemic lows. Soaring prices have been the leading cause of consumer misery since the second half of 2021 and the July CPI cooldown brings the MI to its lowest level since April:
In today's also-ran data, demand for home loans held steady last week even as mortgage rates crept modestly higher.
The average 30-year fixed contract rate inched ever so slightly higher, adding 3 basis points to 5.47%.
While applications for loans to purchase homes inched 1.4% lower, refi demand more than made up for it, rising 3.5% for a total nominal demand increase of 0.2%.
Still, the overall trend shows softening homebuyer demand as rising home prices and the upward march of mortgage rates have caused affordability to evaporate.
"The purchase market continues to experience a slowdown, despite the strong job market," writes Joel Kan, associate vice president of economic and industry forecasting at MBA. "Activity has now fallen in five of the last six weeks, as buyers remain on the sidelines due to still-challenging affordability conditions and doubts about the strength of the economy."
Nancy Vanden Houten, lead U.S. economist at Oxford Economics, sees a bumpy road ahead.
"We expect that mortgage rates will continue to be volatile in the weeks ahead, tracking the volatility in the Treasury market," Houten writes.
The graphic below shows overall mortgage activity has plummeted by 62.9% compared with the same week last year:
Wall Street ate up the data, jumping sharply higher.
All three major U.S. stock indexes are bright green, powered by the usual interest-rate sensitive market movers Microsoft , Apple and Amazon.com.
Energy stocks are an island of red in a sea of green, pulled lower by tumbling crude prices.
(Stephen Culp)
U.S. STOCKS POP ON CPI SURPRISE (0955 EDT/1355 GMT)
The main U.S. indexes are sharply higher in early trade on Wednesday as they celebrate a slower-than-expected rise in inflation last month which has prompted traders to cut their bets on a third straight 75-basis-point interest rate hike in September.
U.S. July CPI headline and core readings came in below estimates.
Ten of 11 major S&P 500 sectors are higher with materials among the strongest groups. Banks are also among early outperformers. That said, growth is outperforming value.
Meanwhile, amid the rally, the CBOE Volatility index is falling to flirt with the 20.00 level, while hitting its lowest level since April 21. The dollar and the U.S. 10-year Treasury yield are under pressure.
Gennadiy Goldberg, interest rate strategist, at TD Securities, said, “I think (the market reaction) just shows you the whipsaw on market price action every time you get a piece of data that can move the expectations for Fed rate hikes. The downside miss is certainly not something the markets were positioned for, I think the market was really one way positioned for a higher inflation print and higher Fed pricing.”
Goldberg added, “There’s still quite a bit of data between now and September… we’ve only gotten one out of two CPI prints before then and we’ve got another payroll print as well and a full set of data effectively for August, so I think the jury’s still very much out on September.”
Here is an early trade snapshot:
(Terence Gabriel, Karen Brettell)
U.S. STOCK FUTURES HEAT UP AS CPI COOLS (0900 EDT/1300 GMT)
U.S. equity index futures are surging in the wake of the release of the latest data on inflation.
July CPI month-over-month and year-over-year came in below expectations. Core readings were also cooler than estimates:
With the data dousing expectations of an aggressive rate hike by the Federal Reserve next month, CME Nasdaq 100 futures are leading U.S. equity index futures' gains, advancing more than 2% from around 0.5% before the data.
European stocks, which were flat for most of the session, jumped in the immediate aftermath of the U.S. inflation figures with the pan-European STOXX 600 rising around 1% from 0.1% ahead of the data.
All 11 S&P 500 sector SPDR ETFs are higher in premarket trade with consumer discretionary, tech and communication services posting the biggest gains.
Gold and bitcoin are jumping, while the dollar, and the U.S. 10-Year Treasury yield are sliding.
Regarding the inflation data, Chris Beauchamp, Chief Market Analyst at IG Group, the trading platform, said:
"The softer inflation print has given risk assets the new lease on life they were looking for, and seems to confirm the idea that some sort of Fed pause might take place in the final months of 2022."
Beauchamp added "Futures are surging and the dollar is firmly on the back foot. It looks like the drop in commodity prices has done its job, and while inflation is still at levels that would be considered eye-watering a year ago, the turn in direction has been greeted with relief by risk assets. Having struggled for a few days, equities seem well-placed to push on from here, extending their summer rally."
Here is a premarket snapshot:
FOR WEDNESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE:
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)