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Stock Market Rally

Stocks Surge on Declining Inflation, Earning Season Looms

Thursday witnessed the continuation of stocks’ rally, driven by new data revealing a cooling inflation rate and the start of earnings season.

The S&P 500 index experienced a 0.5% uptick, while the Dow Jones Industrial Average 0.3%. The tech-heavy Nasdaq Composite index outperformed all, soaring by about 1%.

On Wednesday, a drop in consumer inflation to a two-year low infused fresh energy into the markets, exerting pressure on the dollar.

The June reading of the Producer Price Index (PPI) fell short of expectations at 0.1%, signaling an unexpected decline.

Additionally, Labor Department data showed surprising drops in the number of Americans filing for unemployment benefits.

Should inflation continue to cool, the Federal Reserve could potentially consider easing its rate hike campaign.

However, according to the CME FedWatch Tool, the majority of traders still anticipate a greater than 90% chance of a July rate increase.

The commencement of earnings season further contributes to the rally in the stock market.

Thursday witnessed positive reports from PepsiCo (PEP) and Delta (DAL), with Wall Street banks such as JPMorgan (JPM) and Citi (C) slated to release their results on Friday, marking the true kickoff of earnings season.

London’s FTSE 100 jumps by a solid 0.4%, showcasing exceptional strength in basic materials and healthcare. The Stoxx 600 index & the France’s Cac 40 soar by a notable 0.7%, while Germany’s Dax achieves an impressive climb of 0.6%.

The pound exhibits impressive resilience, surging by a remarkable 0.9% against the dollar and reaching its highest levels since April 2022, despite a mild contraction in UK economic growth.

Across Asia, intriguing narratives unfold: Hong Kong’s Hang Seng index experiences a significant surge of 2.6%, while the Hang Seng Tech index steals the spotlight with an impressive 3.6% rally, thanks to unwavering governmental support for the tech sector.

Despite disappointing China Balance Of Trade figures, the region proves its resilience as the CSI 300 surges by a remarkable 1.4%, Japan’s Topix mirrors the success with a 1% climb, and South Korea’s Kospi witnesses a notable increase of 0.5%.

Inflation on a Downward Trend, Producer Prices Continue to Fall

Inflation is waning faster than expected, surprising analysts who have been monitoring the latest economic data.

The latest Producer Price Index (PPI) report, published on Thursday, unveiled a marginal increase of 0.1% in prices compared to the previous year. However, when excluding food and energy, the core prices experienced a noticeable hike of 2.4%.

This recent decline in producer prices marks the twelfth consecutive decrease, pointing towards a sustained downward trend.

Merely a day ago, the Consumer Prices Index divulged that inflation rates in June were the slowest recorded since March 2021.

These encouraging inflation figures have sparked optimism, leading experts to speculate that the upcoming interest rate hike scheduled for July may potentially be the last of its kind.

In spite of the prevailing sentiment that the Federal Reserve will continue raising interest rates in the near future, analysts have revealed an alternative perspective. They suggest that this forthcoming hike could very well mark the termination of the present cycle, signaling a shift in the trajectory.

EURUSD Extends Rally Towards 1.1200

EUR/USD on the rise, approaching 1.1200 mark amidst ongoing USD selloff. The pair reached its highest level in more than a year, benefitting from weak producer inflation data. Keep an eye on support levels at 1.1150, 1.1110, and 1.1065. Meanwhile, resistance levels are at 1.1190, 1.1240, and 1.1285.

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Author

  • Zahari Rangelov

    Zahari Rangelov is an experienced professional Forex trader and trading mentor with knowledge in technical and fundamental analysis, medium-term trading strategies, risk management and diversification. He has been involved in the foreign exchange markets since 2005, when he opened his first live account in 2007. Currently, Zahari is the Head of Sales & Business Development at TraderFactor's London branch. He provides lectures during webinars and seminars for traders on topics such as; Psychology of market participants’ moods, Investments & speculation with different financial instruments and Automated Expert Advisors & signal providers. Zahari’s success lies in his application of research-backed techniques and practices that have helped him become a successful forex trader, a mentor to many traders, and a respected authority figure within the trading community.