Markets struggle after the PCE inflation report

Dow dropped 106, advancers only slightly ahead of decliners & NAZ is up 46.  The MLP index added 1 to 286 after a strong advance yesterday & the REIT index hardly budged in the 423s.  Junk bond funds had modest buying & Treasuries saw minimal selling, raising yields slightly (more below).  Oil was off 1+ back down to the 74s & gold dropped 21 to 2538 on profit taking.

Dow Jones Industrials

An inflation measure closely watched by the Federal Reserve inched higher in Jul as elevated prices continue to weigh on Ms of Americans.  The Commerce Dept reported that the personal consumption expenditures (PCE) price index rose 0.2% from the previous month.  On an annual basis, prices climbed 2.5%.  Those figures are mostly in line with expectations.  When excluding food & energy prices, which are more volatile, core prices climbed 0.2% for the month & remain up 2.6% when compared with the same time last year.  While the Fed is targeting the PCE headline figure as it tries to bring consumer prices back to 2%, policymakers view core data as a better indicator of inflation.  Both the core & headline numbers point to inflation that is continuing to cool.  Other figures included in the report showed that consumer spending rose 0.5% in Jul compared with a 0.3% increase in Jun, as Americans continued to open their wallets.  Consumer spending has proven surprisingly resilient, despite high prices, steep interest rates & the resumption of federal student loan payments.  The report also showed that personal income rose 0.3% last month, slightly higher than expected.  The data comes as investors look for signs that the Fed is prepared to cut interest rates.  Policymakers, including Chair Jerome Powell, have signaled in recent days that they are ready to start adjusting interest rate policy.  "The time has come for policy to adjust," Powell said last week.  "The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks."  Investors widely expect the Fed to reduce rates in Sep amid signs that the economy is weakening & inflation is still easing.  About 30% of traders are actually pricing in an even bigger ½-point rate cut next month as concerns grow about the state of the job market.

Inflation measure closely watched by the Fed rises 2.5% in July

Intel (INTC), a Dow stock, execs are working with multiple advisors to formulate options to address its flagging business.  Advisors will likely present INTC directors with options at an upcoming board meeting in Sep.  The advisors are considering a full range of options, including splitting off & selling businesses.  CEO Pat Gelsinger acknowledged publicly that the company understood investor skepticism & was working to address it.  “We realize we have to operate efficiently with nimbleness, with urgency,” Gelsinger said at Deutsche Bank's Technology Conference.  INTC remains on track to launch its next iteration of its laptop central processor, Lunar Lake, Gelsinger said at the appearance.  But investors don't see a turnaround on the horizon & have pushed the stock down almost 60% this year.  Alongside a disastrous earnings report earlier this month, INTC announced it would lay off 15K workers.  The job cuts, part of a broader focus on slashing expenses, did little to assuage investor dismay.  While Gelsinger said yesterday that the foundry business had roughly a dozen interested customers, the buildout remains costly for INTC.  INTL stock rose 1.87 (9%).

Intel working with bankers to present board with strategic options

The yield on the 10-year Treasury was unchanged as investors digested the latest batch of inflation data.  The yield on the benchmark 10-year note was flat at 3.871% & the yield on the 2-year Treasury rose 2 basis points to 3.91%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Yields ticked higher after the release of the the personal consumption expenditures price index.  It comes after economic data released yesterday further eased recession concerns.  Weekly jobless claims fell from the prior week, while 2nd-qtr gross domestic product was revised higher to 3% growth from an initial 2.8% rate.  Fed Chair Jerome Powell said last week that “the time has come for policy to adjust,” bolstering expectations for a rate cut at the central bank's next meeting.  Powell declined to provide exact indications on the timing or extent of the cut, however.

10-year Treasury yield is flat after key inflation indicator matches expectations

Dow began trading higher, but nervous investors have dragged it well into the red.  Traders are trying to take an upbeat tone going into the end of the month, with recession fears & the early-Aug rout in the rear-view mirror & a long-awaited start to Fed easing just ahead.  PCE inflation levels are closely tracked by the Fed & are watched closely to calibrate the size & pace of interest rate cuts this year.  After Chair Jerome Powell last week made it clear a pivot can be expected in Sep, bets on 0.5% cut have mounted amid signs of strength in the economy.  But the steady level of price pressures in Jul kept a 0.25% move lower in play.