Markets Today: Stocks Higher after Favorable U.S. Deflator Report

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are up +0.59%, and Sep Nasdaq 100 E-Mini futures (NQU23) are up +0.86%.

Stocks are higher after this morning’s PCE deflator report was mildly favorable and could encourage the Fed to be less hawkish.  The 10-year T-note yield this morning is down -1 bp after Thursday’s surge of +13 bp on Fed Chair Powell’s hawkish comments.  U.S. stocks have some carry-over support from today’s +1.0% rally in European stocks.

Today’s May PCE deflator, the Fed’s preferred inflation measure, rose +0.1% m/m and +3.8% y/y, which was in line with market expectations.  The May core PCE deflator rose +0.3% m/m, which was in line with market expectations, but the May core PCE deflator on a year-on-year basis rose by +4.6%, which was slightly weaker than market expectations of +4.7%.

The deflator report showed that inflation is going in the right direction, with the headline deflator easing to +3.8% y/y from April’s revised +4.3%, and the core deflator easing to +4.6% y/y from April’s +4.7%.  Still, the Fed will remain worried about sticky core inflation, with the core deflator still at a very high +4.6% y/y, far above the Fed’s +2% inflation target.

May U.S. personal income rose +0.4% m/m, which was slightly stronger than expectations of +0.3%, although April was revised lower to +0.3% m/m from +0.4%.  May U.S. personal spending rose by +0.1% m/m, slightly weaker than expectations of +0.2%, and April was revised lower to +0.6% m/m from +0.8%.  May real personal spending was unchanged m/m after a revised +0.2% m/m increase in April.

The markets are discounting the odds at 84% for a +25 bp rate hike at the next FOMC meeting on July 25-26.  The markets are anticipating a peak funds rate of 5.42% by November, which is +35 bp higher than the current effective federal funds rate of 5.07%.

China’s PMI reports overnight were roughly in line with market expectations but reinforced the view that China’s economy is losing steam after an initial post-Covid boom.  China’s June manufacturing PMI rose +0.2 points to 49.0, which was in line with market expectations but remained below the expansion-contraction level of 50.  China’s June non-manufacturing PMI fell -1.3 points to 53.2, weaker than market expectations for a decline to 53.5.

The June Eurozone CPI report of +0.3% m/m was in line with market expectations.  The June CPI on a year-on-year basis eased to +5.5% y/y from May’s +6.1% y/y and was slightly weaker than market expectations of +5.6%. The June core CPI rose slightly to +5.4% y/y from May’s +5.3% but was slightly weaker than market expectations of +5.5% y/y.

The May Eurozone unemployment rate was unchanged from April at 6.5%, in line with market expectations.

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +1.0%.  China’s Shanghai Composite index today closed +0.62%.  Japan’s Nikkei Stock Index today closed down -0.14%.

Pre-Market U.S. Stock Movers

Nike (NKE) is down -2.5% in pre-market trading after issuing disappointing earnings and guidance, although its sales figures were better than expected.

Adobe (ADBE) is down -0.9% after UK regulators expressed competition concerns about Adobe’s acquisition of Figma.

Carnival (CCL) is up +3.0% after an upgrade by Jefferies to buy from hold.

XPeng (XPEV) is up more than +8% in pre-market trading after the company announced its new G6 electric SUV.

Citi initiated research coverage at a buy for Juniper Networks (JNPR), which jumped +1.4% in pre-market trading, and for Keysight Technologies (KEYS), which is up +1.0%.  Citi initiated coverage at neutral for Cisco Systems (CSCO) (up +0.3% in pre-market) and Arista Networks (ANET) (up +1.7% in pre-market trading).

Accolade (ACCD) rose +13% after management issued stronger-than-expected guidance for Q2 revenue.

Today’s U.S. Earnings Reports (6/30/2023)

F45 Training Holdings Inc (FXLV), Constellation Brands Inc (STZ), Latch Inc (LTCH), and Accenture PLC (ACN).

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