Wednesday, August 10, 2022

Markets rally on data that shows cooling inflation in July

Dow surge 558, advancers over decliners 6-1 & NAZ advance 317.  The MLP index added 1+ to 208 & the REIT index went up 4+ to the 443s. Junk bond funds rose along with stock market & Treasuries were purchased, reducing yields (more below).  Oil was off almost 2 to the 88s & gold was up 4 to 1816.

AMJ (Alerian MLP index tracking fund)

 

 

 




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The torrid pace of inflation slowed in Jul for the first time in months, but prices remained near the highest level in 40 years.  The Labor Dept reported that the consumer price index, a broad measure of the price for everyday goods including gasoline, groceries & rents, rose 8.5% in Jul from a year ago, below the 9.1% year-over-year surge recorded in Jun.  Prices were unchanged in the one-month period from Jun.  Those figures were both lower than the 8.7% headline figure & 0.2% monthly gain forecast, likely a welcoming sign for the Federal Reserve as it seeks to cool price gains & tame consumer demand.  Core prices, which strip out the more volatile measurements of food & energy, climbed 5.9% from the previous year, below the 6.1% forecast but matching the reading from Jul.  Core prices also rose less than expected, rising 0.3% on a monthly basis – a smaller increase than in Apr, May & Jun, an encouraging sign that inflation is starting to loosen its stranglehold on the economy.  Still, experts cautioned that while the Jul slowdown is a step in the right direction, inflation remains painfully high & could be slow to return to the Fed's preferred target of 2%.

Inflation climbs in July as prices cool but remain near record high

Small business confidence rose slightly in Jul but remained near a historic low as fears over white-hot inflation persisted, with the most business owners since 1979 reporting that rising prices were their single most important problem, according to a new survey.  The National Federation of Independent Businesses (NFIB), an association of small business owners, said its Small Business Optimism Index climbed to 89.9 last month, a 0.4 percentage point increase from Jun.  That marks the 7th straight month of readings below the 48-year average of 98.  The outlook is dark for many small businesses but starting to improve, with the percentage of owners expecting better business conditions over the next month, climbing 9 points from Jun's record low.  Expectations for better business conditions have deteriorated consecutively  from Jan to Jun.  According to the survey, the biggest problem is inflation.  Despite the improvement in business condition expectations, 37% of small business owners reported that rising prices are their single most important problem in operating their business, the highest reading since 1979.  "The uncertainty in the small business sector is climbing again as owners continue to manage historic inflation, labor shortages and supply chain disruptions," said Bill Dunkelberg, the chief economist at NFIB.  "As we move into the second half of 2022, owners will continue to manage their businesses into a very uncertain future."  In a possibly reassuring sign, the percentage of small business owners raising the price of goods to offset inflation decreased 7 points in Jul to 56%.  Still, while the decline is "significant, the net percent still raising prices is inflationary," the survey said.

INFLATION NATION: Small business sentiment hovers near historic low as prices soar

Treasury yields dropped as a highly anticipated inflation figure came in flat compared with the previous month.  The yield on the benchmark 10-year Treasury note tumbled almost 9 basis points to 2.71%, hitting the lowest level in a week & the yield on the 30-year Treasury bond fell about 2 basis points to 2.979%.  Yields move inversely to prices & a basis point is equal to 0.01%.  The sharp decline in yields came as data showed the consumer price index rose 8.5% in Jul from a year ago, lighter than a the estimate of 8.7%.  Prices were also unchanged from the previous month.  Excluding volatile food & energy prices, core CPI, rose 5.9% annually & 0.3% monthly, compared to respective estimates of 6.1% & 0.5%.  The inflation report suggested to some that price pressures might have peaked, which could spark speculations that the Federal Reserve could conduct a smaller interest-rate hike next month.

Treasury yields tumble after July consumer prices come in unchanged from prior month

Buyers came out at the opening & the Dow continues at that elevated level.  However inflation problems have not gone away as shown in the small business community.  Tomorrow's producer price index will give a glimpse on what to expect in the coming weeks. 

Dow Jones Industrials

 






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