July's US PPI data indicates cooling inflation, coupled with falling oil prices, prompting markets to further bet that the Federal Reserve will not raise interest rates next month, boosting risk appetite in US stocks.
The Producer Price Index (PPI) released on Thursday was flat month-over-month, with the year-on-year increase dropping from 5.5% in June to 4.7%, exceeding market expectations. Following the relatively mild CPI report earlier this week, this data further pushed down money market expectations for a September rate hike probability to below 40%, and a full rate hike by December has not yet been fully priced in.
The repricing of rate hike expectations quickly transmitted to asset prices. The S&P 500 index hit a new high. The Nasdaq 100 index rose 1.15%, led by technology and semiconductor sectors. However, the US stock rally remained concentrated in the tech sector, with the Dow Jones Industrial Average gaining only 0.1%, indicating limited market breadth.
Meanwhile, the 10-year US Treasury yield fell 5 basis points to 4.65%. Crude oil prices fell about 2.5% to $81.21 per barrel, gold retreated 1.4% to $4347.66 per ounce, and the US dollar was largely flat against major currencies.
US Bond Market Slightly Strengthens, 30-Year Auction Yield Reaches Record High
The US Producer Price Index (PPI) rose 4.7% year-on-year in July, lower than June's 5.5% increase, and was flat month-over-month, both beating market estimates. Market expectations for a 2026 rate hike today further plunged to the lowest level since Kevin Warsh's first FOMC meeting.
The market now sees a 68% probability that the Fed will keep rates unchanged in September, compared to 59% yesterday.
Glen Smith of GDS Wealth Management stated that the data shows that although inflation remains well above the Fed's 2% target, the oil-price-driven inflationary pressures seen since the outbreak of the Iran war are showing signs of stabilization.
Arun Sundaram of CFRA believes that Thursday's mild PPI data, combined with last week's lower-than-expected jobs report, would provide Fed Chairman Kevin Warsh with more room for maneuver, potentially enough to support holding steady this time. "But the Fed's decision is far from final," he said, "investors still need to digest several potential variables."
Moderating inflation data led to a general decline in US Treasury yields, with the 10-year yield falling about 5 basis points to 4.65%.
In addition, Thursday's 30-year Treasury auction settled at a high yield of about 5%, the highest since 2001, reflecting market demands for higher premiums to absorb the expanding supply driven by persistent fiscal deficits.
Technology and AI Sentiment Boost Equity Markets
All three major US stock indices closed higher on Thursday, with the Dow up 0.13%, the S&P 500 up 0.65%, and the Nasdaq up 0.81%. In addition to inflation data, developments related to artificial intelligence also provided additional support for the market.
The S&P 500 index broke through the 7800-point barrier for the first time but failed to close above that level.
Significant gains in software and semiconductor sectors pushed the Nasdaq to significantly outperform the Dow.
Major tech stocks staged a modest rebound after three consecutive days of declines.
Significant gains in software and semiconductor sectors pushed the Nasdaq to significantly outperform the Dow.
Major tech stocks staged a modest rebound after three consecutive days of declines.
Several semiconductor and memory chip stocks were among the day's top gainers. SanDisk, during an investor day, stated they plan to return 100% of excess cash to shareholders. The stock soared sharply in early trading, surging nearly 14%.
Workday surged nearly 18% for the day, once jumping as much as 30% intraday, driving software stocks higher. Wall Street News reported that private equity giant Silver Lake is in talks to acquire this software provider,
Oil Prices Retreat, Refined Products Market Becomes Extremely Tight
The IEA and OPEC successively lowered demand forecasts, and while tensions in Iran remain, they have not escalated further, putting pressure on the market.
Oil prices closed lower on Thursday for the first time after a six-day rally, with Brent crude fluctuating and WTI crude falling about 2.5% to $81.21 per barrel.
However, reports that Houthi forces used drones to attack Saudi Aramco's refinery facilities in Jizan, Saudi Arabia, again triggered a brief spike in crude oil. Rebecca Babin, senior energy trader at CIBC Private Wealth Group, stated:
This morning's move felt more like buyers stepping back to wait and see, rather than a truly bearish market. Coupled with yesterday's large US crude inventory build, buyers currently lack a clear reason to enter.
Pressure is more severe in the refined products market, with the US diesel crack spread approaching $100 per barrel, nearing the peak levels seen at the beginning of the US-Iran conflict in March.
US Energy Secretary Chris Wright said on Tuesday that crude oil flows through the Strait of Hormuz averaged about 9 million barrels per day over the past week, higher than most industry estimates, indicating significant uncertainty in market judgments about the actual supply gap size.
Francisco Blanch, head of global research at Bank of America, said in an interview with Bloomberg Television:
Unless the geopolitical situation improves, I have a hard time seeing oil prices fall rapidly. If inventories are depleted, price volatility will inevitably increase sharply, and demand will then be forced to contract.
Performance of Other Major Asset Classes
The US dollar experienced volatile swings during the day but ultimately ended largely flat, retreating to levels seen before last Friday's post-NFP plunge.
The Japanese yen continued to weaken against the dollar, approaching the 160 level, gradually erasing the impact of the yen intervention.
Gold prices retreated below $4400 during the day, having tested $4450 overnight, barely holding onto this week's gains.
All three major US stock indices closed higher on Thursday, with the S&P 500 up 0.65%, closing at a record high, and the Nasdaq up 0.81%. Most major tech stocks rose, with Tesla gaining over 3.5%, leading the "Magnificent Seven" tech giants. Memory stocks generally rose, with SanDisk up over 13%, Western Digital and SK Hynix up over 7%, and Seagate Technology up nearly 5%.
Major US stock indices:
The S&P 500 index closed up 50.49 points, or 0.65%, at 7798.99 points.
The Dow Jones Industrial Average closed up 69.72 points, or 0.13%, at 53885.10 points.
The Nasdaq Composite closed up 214.54 points, or 0.81%, at 26803.03 points. The Nasdaq 100 index rose 1.15% to 30084.50 points.
The Russell 2000 index closed up 0.24% at 3052.85 points.
The VIX volatility index closed down 4.78% at 14.55.
US Stock Sector ETFs:
US stock sector ETFs mostly closed higher, with the Real Estate ETF up 1.42%, the Consumer Staples ETF up 1.07%, the Semiconductor ETF up 0.76%, the Financial Select ETF up 0.56%, the Solar ETF, Consumer Discretionary ETF, Regional Banking ETF, and Utilities ETF up between 0.42% and 0.48%. The Health Care ETF edged down 0.04%.
(August 13th US Stock Sector ETFs)
Magnificent Seven Tech Stocks:
The Wind US Tech Giants (Magnificent 7) Index rose 0.82%.
Tesla rose 3.80%, Meta Platforms rose 2.74%, Apple rose 1.01%, Microsoft rose 0.90%, Nvidia rose 0.56%, Google rose 0.44%, Amazon fell 0.80%.
Chip Stocks:
The Philadelphia Semiconductor Index closed up 56.62 points, or 0.46%, at 12456.00 points.
TSMC ADR rose 0.33%, AMD edged up 0.02%.
Other Individual Stocks:
Memory stocks generally rose, with SanDisk up over 13%, Western Digital and SK Hynix up over 7%, Seagate Technology up nearly 5%.
Influenced by acquisition reports, Workday once soared 30%. AI application software stocks collectively surged, with the Technology Software Sector ETF-iShares up over 3%.
