Despite market volatility, the S&P 500 has closed higher for the fifth straight day, driven by optimistic inflation data that has increased expectations for an interest rate cut by the Federal Reserve in September. The Dow Jones Industrial Average also saw gains, surpassing the 40,000 mark, while the Nasdaq Composite barely edged higher. The latest consumer price index report revealed a 2.9% year-over-year increase in inflation, reinforcing investor sentiment that the Fed may soon ease its monetary policy. This positive momentum comes even as global markets face mixed economic signals, including a cautious outlook in Europe and a surprising rate cut in New Zealand.

Key Takeaways:

  • S&P 500 Extends Winning Streak Amid Cooling Inflation: The S&P 500 rose by 0.38%, closing at 5,455.21 and marking its fifth consecutive day of gains. This upward momentum is largely attributed to encouraging inflation data, with the Consumer Price Index (CPI) showing a year-over-year increase of 2.9% which is the lowest since March 2021. 
  • Dow Jones Surpasses 40,000 Milestone: The Dow Jones Industrial Average climbed 242 points, or 0.61%, to close at 40,008.39, crossing the significant 40,000 threshold. This gain follows the release of CPI data that aligned with market expectations, reinforcing confidence in the economic recovery and the possibility of monetary policy easing.
  • Nasdaq Holds Steady Amid Tech Sector Volatility: Despite facing earlier losses, the Nasdaq Composite edged up by 0.03% to finish at 17,192.60. The index grappled with significant declines from heavyweights like Alphabet and Tesla, both of which fell more than 3%. However, gains in other sectors helped offset these losses, allowing the Nasdaq to close marginally higher.
  • Consumer Prices Increase Modestly, Core Inflation Stable: In July, US consumer prices rose by 0.2% month-over-month, bringing the annual inflation rate to 2.9%, slightly below the anticipated 3%. Core CPI, which excludes volatile food and energy prices, also saw a 0.2% monthly increase, matching forecasts. Notably, shelter costs increased by 0.4%, accounting for 90% of the overall inflation uptick, while food prices rose by 0.2% and energy prices remained flat.
  • European Markets Close Higher Amid Mixed Economic Signals: The Stoxx 600 index advanced by 0.43%, driven by a strong performance in the travel and leisure sector, which gained 2.89%. The FTSE 100 Index rose by 0.56% to close at 8,281.05, while France’s CAC 40 Index increased by 0.65%. Concurrently, UK inflation for July came in at 2.2%, slightly below the expected 2.3%, with services inflation—a key metric for the Bank of England—easing to 5.2% from 5.7%.
  • Asia-Pacific Markets Respond to New Zealand’s Surprise Rate Cut and Political Developments in Japan: Japan’s Nikkei 225 climbed 0.58% to close at 36,442.43, lifted by Prime Minister Fumio Kishida’s announcement of his impending resignation. The broader Topix index rose 1.11% to 2,581.9. The Reserve Bank of New Zealand unexpectedly cut its benchmark rate to 5.25%, defying expectations of maintaining the 5.5% rate, leading to mixed reactions across the region. South Korea’s Kospi ended 0.88% higher at 2,644.5, while Australia’s S&P/ASX 200 saw a modest rise of 0.31% to close at 7,850.7.
  • UK Inflation Slightly Below Expectations, Hits 2.2% in July: The UK’s Consumer Price Index rose to 2.2% in July, marginally below the forecasted 2.3% and up from 2% in the previous two months. This marks a subtle shift above the Bank of England’s target rate. The increase was primarily driven by housing and household services, notably gas and electricity prices. Core CPI also saw a decrease, coming in at 3.3% compared to 3.5% in the prior month.
  • 10-Year Treasury Yield Slightly Declines Amid Inflation Data: The yield on the 10-year US Treasury note decreased by 1.7 basis points to 3.837%, following the release of inflation figures that met market expectations. Conversely, the 2-year Treasury yield experienced a slight uptick, advancing 2 basis points to 3.962%. These movements reflect investor reactions to the latest economic indicators and their implications for future monetary policy.
  • Oil Prices Dip Following Geopolitical Developments: West Texas Intermediate (WTI) crude oil futures fell by 1.58%, closing at $77.10 per barrel, while Brent crude declined by 1.08% to settle at $79.82 per barrel. The downturn comes in the wake of President Biden’s comments suggesting that Iran might refrain from attacking Israel if a cease-fire is reached in Gaza, introducing a new layer of complexity to the global oil market dynamics.

FX Today:

  • Gold Slips as Investors Favour Higher Yields: Gold (XAU/USD) remained under pressure on Wednesday, dropping below $2,460 as investors shifted towards higher-yielding assets. Despite the US Dollar’s weakness following the July CPI data, gold found support at $2,438.80. Technical indicators suggest limited further downside, with resistance at $2,458.70 and key support levels at $2,438.80 and $2,426.90.
  • EUR/USD Approaches Key Resistance Levels: The EUR/USD pair continued its upward trend, nearing its year-to-date high around 1.1050. The sustained weakness in the US Dollar has supported this move, with the pair now testing resistance at 1.1047, and possibly aiming for 1.1139. On the downside, significant support is positioned around the 200-day SMA at 1.0837.
  • GBP/USD Gains on Slowing US Inflation Data: The Pound Sterling (GBP/USD) rebounded to a two-week high at 1.2870 after dipping earlier in the session to 1.2820. The pair remains well-supported above the 20-day EMA near 1.2800, with resistance seen at 1.2840 and 1.2900. A decline below 1.2665 could trigger further losses, with next support at 1.2613.
  • AUD/USD Weakens Amid RBNZ Rate Cut and China Concerns: The Australian Dollar (AUD/USD) fell by 0.30% to 0.6615, following the Reserve Bank of New Zealand’s unexpected rate cut to 5.25%. The decline is further pressured by concerns over reduced demand for Australian exports due to China’s economic slowdown. The pair’s key support lies at 0.6600 and 0.6580, with resistance near 0.6640.

Market Movers:

  • Kellanova Jumps on Acquisition News: Shares of Kellanova surged by 7.3% to $83.50 after the company announced its acquisition by snack maker Mars in a $36 billion cash deal. The agreement values Kellanova at $83.50 per share, and the transaction is expected to close in the first half of 2025. This move follows Kellanova’s recent split from Kellogg, marking a significant strategic shift for the company.
  • Victoria’s Secret Soars on New CEO Appointment: Victoria’s Secret stock skyrocketed by 16.5% following the announcement that the former CEO of Savage X Fenty will take over as the new CEO effective September 9. The company also provided an optimistic preview of its second-quarter results, with adjusted operating income and earnings per share expected to surpass prior guidance.
  • Flutter Entertainment Rises on Strong Q2 Revenue: Flutter Entertainment’s stock jumped 10.2% after the company reported better-than-expected second-quarter revenue of $3.61 billion, surpassing the StreetAccount consensus of $3.4 billion. The positive earnings report also prompted Flutter to raise its full-year guidance, further boosting investor confidence.
  • Alphabet Declines Amid DOJ Breakup Concerns: Alphabet (Google) shares fell by 2.3% after reports emerged that the Department of Justice is considering breaking up the tech giant. The DOJ is reportedly exploring the possibility of forcing Alphabet to divest its Android operating system and Chrome browser, raising concerns about the company’s future structure and market dominance.
  • Brinker International Drops on Weak Earnings Forecast: Brinker International, the parent company of Chili’s, saw its shares plummet by 10.5% after issuing a disappointing profit forecast for the full year. The company reported adjusted earnings of $1.61 per share for the fiscal fourth quarter, falling short of the consensus of $1.72 per share. Brinker also lowered its earnings guidance for fiscal 2025 to a range of $4.35 to $4.75 per share, below the expected $4.78.
  • Cardinal Health Climbs on Strong Q4 Results: Cardinal Health shares gained 3.2% after the company reported fiscal fourth-quarter earnings of $1.84 per share, exceeding Wall Street’s expectations of $1.73 per share. The company also posted revenue of $59.87 billion, beating the consensus estimate of $58.64 billion, and raised its full-year earnings guidance, contributing to the stock’s positive performance.
  • Nu Holdings Gains on Earnings Beat: Nu Holdings shares rose by 5.1% after the company reported better-than-expected second-quarter results. The Brazilian digital banking platform posted an adjusted net income of $563 million, surpassing the FactSet consensus estimate of $460.3 million. Revenue also exceeded expectations, coming in at $2.85 billion compared to the anticipated $2.57 billion.
  • Illumina Rises Following Upgrade: Illumina shares increased by 2.1% after being upgraded from “hold” to “buy”. The upgrade followed a recent guidance reset and a change in management, which analysts believe could drive future growth and improve the company’s performance.

As the markets close out another eventful day, the S&P 500’s continued rise underscores a growing optimism fuelled by favourable inflation data and anticipation of potential Fed rate cuts. Major indices like the Dow Jones and Nasdaq navigated mixed sector performances, with tech stocks facing challenges while others surged on positive earnings and strategic shifts. The developments in the FX market, coupled with significant moves in gold, highlight the ongoing balancing act investors face in an environment of shifting economic indicators. With key corporate announcements and geopolitical events still unfolding, market sentiment remains hopeful as traders look ahead to what the next few weeks might bring.