Markets Today: Stocks See Support After U.S. Deflator Report

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are up +0.19%, and Sep Nasdaq 100 E-Mini futures (NQU23) are up +0.01%.

Stock indexes initially rallied mildly but then fell back after this morning’s news that the PCE deflator fell to a new post-pandemic low of +2.1% (+2.9% core) on a 3-month annualized basis, although the report was in line with market expectations.

Specifically, the U.S. Jul PCE deflator, the Fed’s preferred inflation measure, rose by +0.2% m/m and +3.3% y/y, which was in line with market expectations.  The U.S. Jul core PCE deflator rose by +0.2% m/m and +4.2% y/y, which was also in line with expectations. 

On a year-on-year basis, the Jul PCE deflator report of +3.3% was up from June’s 2-1/4 year low of +3.0% but remained far below the 4-decade high of 7.0% posted in June 2022. Meanwhile, the Jul core PCE deflator of +4.2% was up from June’s 1-1/4 year low of 4.1%, but remained far below the 4-decade high of +5.4% posted in Feb 2022. 

On a 3-month annualized basis, the Jul PCE deflator fell to a new post-pandemic low of +2.1%, and the core deflator fell to a new post-pandemic low of +2.9%.

U.S. Jul personal spending rose +0.8% m/m, slightly stronger than market expectations of +0.7%.  Jul personal income rose +0.2% m/m, slightly weaker than expectations of +0.3% m/m.

The weekly U.S. initial unemployment claims report of -4,000 to 228,000 showed a slightly stronger labor market than expectations for a rise to 235,000.  However, continuing claims rose by +28,000 to 1.725 million, which showed a weaker labor market than expectations for a report of 1.706 million.

In a dovish comment, Atlanta Fed President Bostic said, “I think we should be cautious and patient and let the restrictive policy continue to influence the economy, lest we risk tightening too much and inflicting unnecessary economic pain.”

The markets are discounting the odds at 12% for a +25 bp rate hike at the September 20 FOMC meeting and 37% for that +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields are mildly lower.  The 10-year T-note yield is down -1.8 bp at 4.096%.  The 10-year German bund yield is down -0.5 bp at 2.493%.  The 10-year UK gilt yield is down -0.6 bp at 4.362%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.33%.  China’s Shanghai Composite Index closed down -0.55%.  Japan’s Nikkei Stock Index closed up +0.88%.

There was a slew of overseas economic news released overnight. 

China’s Aug manufacturing PMI rose +0.4 to 49.7, which was stronger than expectations for a -0.1 point decline to 49.2.  China’s non-manufacturing PMI fell by -0.5 to 51.0, which was weaker than expectations for a -0.3 point decline to 51.2.

Japan’s July retail sales rose by +2.1% m/m and +6.8% y/y, stronger than expectations of +0.8% m/m and +5.5% y/y.  Japan’s July preliminary industrial production fell by -2.0% m/m and -2.5% y/y, which was weaker than expectations of -1.4% m/m and -1.4% y/y.  Japan’s July housing starts fell by -6.7% y/y, which was weaker than expectations of -1.3% y/y and weaker than June’s report of -4.8%.

In Europe, German retail sales fell by -0.8% m/m and -2.4% y/y, which was weaker than expectations of +0.3% m/m and -1.4% y/y.  German unemployment rose by +18,000, which showed a stronger labor market than expectations of +10,000.  The French consumer spending report of +0.3% m/m and -1.1% y/y was in line with market expectations. 

The Eurozone preliminary Aug CPI rose by +0.6% m/m and +5.3% y/y, stronger than expectations of +0.4% m/m and +5.1% y/y.  The Eurozone Aug CPI of +5.3% y/y was unchanged from June’s level of +5.3%. Meanwhile, the Aug core CPI eased to +5.3%, down from July’s +5.5% and was in line with market expectations. 

Pre-Market U.S. Stock Movers

Dollar General (DG) plunged -17% in pre-market trading after cutting its earnings forecast for the second consecutive quarter due to rising labor costs and “softer sales trends.”

Salesforce (CRM) (CRM) is up +6.4% in pre-market trading after its earnings guidance was stronger than expected.

CrowdStrike (CRWD) is up +1.0% in pre-market trading after its earnings report was stronger than expected.

Shopify (SHOP) is up +6.7% in pre-market trading after Amazon announced that an app integration will allow Shopify stores to offer Buy with Prime.

Chewy (CHWY) fell -4.4% in pre-market trading after Evercore ISI cut its rating on the stock to in-line

from outperform.

Arista Networks (ANET) is up +2.7% in pre-market trading after Citi upgraded its rating on the stock to buy from neutral based on expectations for an improvement in corporate cloud spending through next year.

Earnings Reports (8/31/2023)

Broadcom Inc (AVGO), Campbell Soup Co (CPB), Ciena Corp (CIEN), Dollar General Corp (DG), Elastic NV (ESTC), HashiCorp Inc (HCP), Hormel Foods Corp (HRL), Lululemon Athletica Inc (LULU), MongoDB Inc (MDB), Nutanix Inc (NTNX), Ollie's Bargain Outlet Holding (OLLI), SentinelOne Inc (S), VMware Inc (VMW).

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