The S&P 500 experienced a notable retreat as investors shifted away from high-flying technology stocks like Nvidia and Meta Platforms. This movement was prompted by the release of the lowest consumer price index (CPI) reading in over three years, which led to lower interest rates and redirected investor interest towards small caps and housing-related shares. Despite earlier reaching new records, both the S&P 500 and Nasdaq Composite ended the day lower. Meanwhile, the Dow Jones Industrial Average saw a modest gain. Investors are now looking ahead with slight optimism, anticipating potential Federal Reserve rate cuts in September and hoping for an economic soft landing.

Key Takeaways:

  • S&P 500 Retreats from Record High: The S&P 500 fell 0.88%, closing at 5,584.54 after hitting a record high earlier in the session. This decline was primarily driven by a significant sell-off in high-flying technology stocks. Nvidia experienced a notable drop of 5%, contributing to the broader market’s retreat. 
  • Nasdaq Composite Pulls Back: The Nasdaq Composite, which also reached a new record earlier in the day, ended the session down 1.95% at 18,283.41. The tech-heavy index was weighed down by declines in major technology stocks. Nvidia’s substantial drop played a significant role in the Nasdaq’s pullback.
  • Dow Jones Industrial Average Gains Slightly: In contrast to the broader market, the Dow Jones Industrial Average managed to eke out a gain, adding 32.39 points, or 0.08%, to close at 39,753.75. This modest increase demonstrates restrained optimism among investors, who are cautiously navigating the mixed performance of different sectors.
  • Russell 2000 Index Surges: The small-cap benchmark Russell 2000 Index gained around 3.6%, driven by investor hopes for a Federal Reserve rate cut in September and an economic soft landing. This surge reflects a shift in investor focus towards smaller companies, which are perceived to benefit more from potential rate cuts and positive economic data.
  • Consumer Price Index Decline: The consumer price index (CPI) fell by 0.1% in June compared to May, bringing the annual inflation rate down to 3%, the lowest in over three years. This decline in inflation was better than economists’ expectations, who had forecasted a 0.1% monthly increase and a 3.1% annual rate. Core CPI, which excludes food and energy, also came in lower than expected at a 3.3% annual rate. The easing inflation has increased the likelihood of a Federal Reserve rate cut, as indicated by the drop in Treasury yields.
  • European Markets Close Higher: European stocks closed higher, with the pan-European Stoxx 600 index gaining 0.65%, led by a 1.78% rise in utilities. The FTSE 100 Index increased by 0.36%, adding 29.83 points, while the CAC 40 Index rose by 0.75%, gaining 57 points. The positive performance of European markets was supported by the release of the US CPI data, which indicated easing inflation and boosted investor sentiment.
  • Asian Markets Rally: Japan’s Nikkei 225 surged 0.94%, closing at an all-time high of 42,224.02, driven by gains in technology stocks. South Korea’s Kospi rose 0.81% to end at 2,891.35, while Australia’s S&P/ASX 200 climbed 0.93% to close at 7,889.6, marking its highest closing level since March. Hong Kong’s Hang Seng index increased by 1.96%, and the mainland Chinese CSI 300 index rose by 1.14% to finish at 3,468.17. 
  • UK Economy Grows: The UK economy grew by 0.4% in May, surpassing expectations of 0.2% growth and rebounding from no growth in April. The British pound rose by 0.7% to its highest level against the US dollar since July 2023, reflecting investor confidence in the UK economy following the data release. The growth is expected to be welcomed by the newly elected Labour Party, which has a mandate to boost economic growth and implement business-friendly policies.

FX Today:

  • USD/JPY Plummets Amid Potential Intervention: The Japanese yen surged around 2% against the US dollar on Thursday, trading at 158.85 from 161.52 earlier in the session, marking the yen’s biggest daily rise since late 2022. This movement was attributed to the release of the lowest US consumer price index reading in over three years, which weakened the dollar. Traders monitored for potential intervention by Japanese authorities, though no concrete evidence was found. The USD/JPY pair fell to its lowest in three weeks, retracing over 38.2% of the 151.85/161.95 up leg. Key resistance levels are at 159.60, 160.00, and further on 160.97 and 161.75, while support levels are at 158.10, 157.50, then 156.90 and 155.70.
  • Gold Price Rallies on Weak US Inflation Data: Gold prices surged on Thursday, with XAU/USD trading at $2,414, up more than 1.80% after bouncing off daily lows of $2,371. The precious metal broke through several key resistance points, including the $2,050 psychological barrier, signalling a strong bullish trend. The next resistance levels are the year-to-date high of $2,450 and the $2,500 mark. On the downside, if gold slides below $2,400, the next demand zone is at $2,392, with further support at $2,350.
  • GBP/USD Soars Past 1.2900 on Soft CPI: The British pound extended its gains on Thursday, trading at 1.2927, up 0.62%, following better-than-expected UK economic data and softer US inflation. If GBP/USD pushes above 1.2950, it could test the peak of 1.2995 and potentially the 1.3000 mark, with further upside to 1.3142. On the flip side, support levels are at 1.2894, 1.2860, and the 1.2800 mark.
  • EUR/USD Rallies to 1.0900 as Fed Rate-Cut Prospects Grow: The EUR/USD pair jumped to near 1.0900 in Thursday’s New York session. The psychological figure of 1.0900 is a key target, with further resistance at 1.0900, 1.0916, and the 1.0981 level. On the downside, support levels are at the 200-day SMA at 1.0802, and at 1.0750.
  • GBP/JPY Plunges Amid Intervention Fears: The GBP/JPY pair experienced significant volatility, traveling 425 pips in the session, hitting a high of 208.11 before plummeting to 203.82. The pair stabilised around 204.99, sustaining more than 1.20% losses. In a bearish continuation, further support lies at 203.25 and the 50-day moving average at 200.16. Conversely, if GBP/JPY recovers and clears 205.00, the pair could aim for 205.64 before challenging 206.00.
  • AUD/USD Posts Fresh Six-Month High Near 0.6800: The Australian Dollar continued its positive trend against the USD, rising to 0.6780 after hitting a high of 0.6798. Support levels in case of a pullback include 0.6670, 0.6650, and eventually 0.6630. Buyers aim for the 0.6760-0.6780 range, with potential further gains beyond 0.6800 in sight.

Market Movers:

  • Delta Air Lines Drops on Weak Forecast: Delta Air Lines saw its shares fall around 4% after issuing a third-quarter sales growth forecast that fell below expectations. The airline also reported an almost 30% decrease in net income for the second quarter compared to the previous year. This disappointing outlook led to declines in other major airline stocks, with American Airlines and United Airlines dropping around 3.8% and 3.2%, respectively.
  • MicroStrategy Rises on Stock Split News: MicroStrategy, the largest corporate holder of bitcoin, experienced a 4% increase in its shares following the announcement of a 10-for-1 stock split. This move is aimed at making the company’s stock more accessible to investors and employees, boosting market enthusiasm.
  • Costco Wholesale Falls on Membership Fee Hike: Costco Wholesale shares fell 4.3% after the retailer announced its first membership fee increase since 2017. The annual membership fees in the US and Canada will rise by $5, and the cost of the higher-tier membership will increase by $10, impacting investor confidence.
  • QuantumScape Soars on Volkswagen Deal: QuantumScape saw its shares soar 30.5% after announcing a new agreement with Volkswagen’s PowerCo battery unit to mass-produce its solid-state battery technology. This deal replaces an earlier venture, marking significant progress in their collaboration and driving investor optimism.
  • Lantheus Holdings Surges on Regulatory Proposal: Lantheus Holdings’ stock jumped 16.4%, extending gains from the previous session. The surge followed a nearly 37% increase after the Centers for Medicare and Medicaid Services proposed a rule targeting the costs of diagnostic radiopharmaceuticals, enhancing the company’s market outlook.
  • PepsiCo Steady After Mixed Results: PepsiCo shares hovered near the flatline despite posting mixed second-quarter results. The company reported adjusted earnings of $2.28 per share, beating the consensus estimate of $2.16, but revenue came in at $22.5 billion, slightly below the expected $22.57 billion.
  • Tesla Falls on Robotaxi Delay: Tesla shares fell 8.4% following a report from Bloomberg News that the company plans to delay its robotaxi unveiling to October from August. This delay, aimed at allowing project teams more time to build additional vehicle prototypes, caused investor concern and led to a significant drop in the stock.
  • Semiconductor Stocks Slip on Profit-Taking: High-flying semiconductor stocks saw a sell-off, leading to a 3.6% decline in the VanEck Semiconductor ETF (SMH). Nvidia tumbled 5.6%, and Advanced Micro Devices (AMD) lost 1.1%, as investors took profits following the release of CPI data and rotated away from tech stocks.

As the markets reacted to the latest US inflation data, the S&P 500 and Nasdaq Composite retreated from record highs, driven by a significant sell-off in big technology stocks such as Nvidia. Meanwhile, the Dow Jones Industrial Average saw modest gains, and small-cap stocks rallied, reflecting hopes for a Federal Reserve rate cut in September. Across the globe, European and Asian markets showed positive momentum, lifted by easing inflation concerns and optimistic economic data. The surge in the Japanese yen and gold prices highlighted the market’s shift towards safe-haven assets amidst growing expectations for rate cuts. The focus will remain on upcoming economic indicators and corporate earnings, which will likely shape the market’s direction in the coming weeks.