Markets rise on improved inflation data for June

Dow gained 127, advancers over decliners an impressive 8-1 & NAZ retreated 211.  The MLP index was fractionally higher to the 291s & the REIT index soared 9+ to the 391s on lower interest rates.  Junk bond funds inched higher & Treasuries had heavy buying which sharply reduced yields (more below).  Oil was up chump change in the 82s following recent selling & gold jumped 42 to 2421 (nearing its record highs made earlier this year.

Dow Jones Industrials 

Inflation cooled more than expected in Jun, a welcome sign for the Federal Reserve even as prices remained uncomfortably high for Ms of Americans.  The Labor Dept said that the consumer price index (CPI), a broad measure of how much everyday goods like gasoline, groceries & rent cost, dropped 0.1% in Jun from the previous month, the first monthly decline since May 2020.  But prices remain up 3% from the same time last year.  Both of those figures are lower than the 0.1% monthly increase & 3.1% headline gain forecast.  Another data point that measures underlying inflationary pressures within the economy also moderated last month.  Core prices, which exclude the more volatile measurements of gasoline & food in order to better assess price growth trends, increased 0.1% in Jun.  From the same time last year, the gauge climbed 3.3%, the lowest reading since Apr 2021.  Altogether, the report indicates that inflation is loosening its stranglehold on the US economy, though prices still remain above the Fed's 2% target.  The softer-than-expected report comes as Federal Reserve policymakers look for evidence that high inflation has been successfully tamed as they contemplate when to start cutting interest rates.  Fed Chair Jerome Powell said during congressional testimony this week that more "good" inflation data would bolster the case for rate cuts this year.  "Incoming data for the first quarter of this year did not support such greater confidence. The most recent inflation readings, however, have shown some modest further progress, and more good data would strengthen our confidence that inflation is moving sustainably toward 2 percent," he added.  A 3.8% drop in gas prices last month helped to offset a 0.2% increase in both food & rent costs.  Housing has been one of the biggest drivers of inflation, but there are signs that shelter costs are easing.  Rent costs rose 0.43% for the month, the smallest increase since Aug 2021, & are up 5.2% from the same time last year.  High rents are concerning because higher housing costs most directly & acutely affect household budgets.  Consumers also saw a rise in food prices, which have been one of the most visceral reminders of inflation for many households.  The cost of food rose 0.2% over the course of the month, which included a 0.1% increase in groceries.

Inflation unexpectedly falls in June as Americans struggle with soaring prices

Treasury yields tumbled after the latest inflation data showed a dip last month, suggesting the Federal Reserve could start to lower interest rates this year.   The yield on the 10-year Treasury fell 9 basis points at 4.18% & the 2-year Treasury yield was down 13 basis points at 4.494%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  The Jun consumer price index, which measures the costs for a basket of goods & services, slid 0.1% from the prior month.  That pushed the 12-month rate to 3%, or its lowest level in more than 3 years.  The forecast expected CPI to reflect a 0.1% rise on a monthly basis & 3.1% from a year earlier.  Core CPI, which excludes volatile food & energy prices, rose 0.1 % on a monthly basis & 3.3% from the year-ago period.  The forecast was for increases of 0.2% & 3.4%, respectively.  Investors are hoping an improvement in inflation will mean the Fed can start to ease monetary policy as soon as this fall.  Odds of a Sep rate cut rose to greater than 80% based on fed funds futures trading following the CPI data, according to the CME FedWatch tool.  Traders still see the Fed standing pat at its meeting later this month.  Investors also weighed comments Fed Chair Jerome Powell made on Capitol Hill this week.  While Powell did not give a clear indication of when interest rates could be cut, he said the central bank did not need to wait until the 2% target had been reached before cutting rates.

10-year Treasury yield dives after June CPI unexpectedly decreases

Delta Air Lines (DAL) forecast record revenue for the 3rd qtr thanks to booming summer travel demand, but its projection fell short of estimates as carriers discounted fares after expanding flights.  In the current qtr, DAL expects sales to rise no more than 4%, below the 5.8% growth estimated & it forecast adjusted EPS of $1.70 - $2.00, short of the $2.05 estimate.  The carrier kicked off an airline earnings season marked by packed planes but profits under pressure as costs rise & increased capacity weighs on fares.  The Transportation Security Administration said it screened more than 3M people for the first time on Sun at US airports.  DAL is a standout in the US airline industry as the most profitable carrier, & this report is a sign that competitors, particularly those focused on the oversupplied US air travel market, could struggle this summer.  For the 3 months ended Jun 30, revenue was $15.4B, up 5.4% from last year & shy of estimates.  EPS was $2.01, with operating expenses up 10% from last year.  Adjusting for 1-time items, EPS was $2.36, in line with estimates.  “The second quarter was a really strong performance,” CEO Ed Bastian said.  “What you see happening is the impact in the domestic marketplace to the lower fare discounting that’s been going on this quarter.”  Airfare in Jun was 5.1% lower than a year earlier & 5.7% lower than the month prior, according to today's latest read on consumer prices, which showed easing inflation.  DAL reiterated its full-year EPS forecast of $6-$7  & said it still expects to generate free cash flow of as much as $4B.  The stock dropped 2.82.

Delta shares fall as a glut of flights drives down fares despite high demand

Stocks started lower, but the bulls returned to lift the stock market.  But tech stocks ran into profit taking in what has been a strong year for them.  In addition there is heavy buying in safe haven gold & Treasuries.  There may be more volatility in the PM.