Wall Street is back in the grove
|Wall Street is back in the groove as stocks climbed and Treasuries rallied. This was all thanks to some surprisingly tepid wholesale inflation figures that hit the tape just in time to set the stage for Wednesday's main event—the consumer price index report.
The S&P 500 enjoyed a robust ascent, marking a 1.4% increase by Tuesday afternoon. It was a green day for nearly every sector. Starbucks led the pack and notched a whopping 21.6% surge after crowning Brian Niccol, formerly of Chipotle, as its new CEO—sparking a caffeinated frenzy among investors.
Over in the tech realm, the Nasdaq Composite wasn't about to sit this dance out, strutting upwards by 2% as all members of its 'Magnificent Seven' club posted gains.
On the bonds front, Treasuries were basking in the glow of softer-than-expected producer price growth for July, fueling dreams of a looser monetary policy horizon. Yields on the 10-year note slipped by 0.05 percentage points to a soothing 3.86%, while the two-year notes saw a modest retreat to 3.99%.
The Fed has craftily re-anchored inflation expectations—a masterstroke that may well clear the track for a hefty rate cut come September. This pivotal achievement has lit up green lights from Wall Street to “The City”, and all the way to Marina Bay, setting the stage for what could be a triumphant rally across global markets.
While tomorrow's CPI could potentially steal the spotlight, today’s PPI numbers served up a delightful market-friendly appetizer, hinting at a possibly milder monetary course. After all, the PPI, which shares similar DNA with the Fed's preferred gauge, the PCE, subtly whispers of a possible 50-basis-point, front-loaded rate cut come September. This revelation sent stocks soaring and the dollar on a decisive downturn against its forex friends, the Euro and Yen.
With traders more than overly prepared to shake off the drama of the past fortnight, today’s market moves seemed tailor-made by the financial deities. They offered a sea of calm and exactly the prescription Wall Street's doctor ordered, promising smooth sailing—at least for now.
Did the recession memo get lost in the mail, or are traders just betting big on the Fed's magic touch to engineer the mother of all soft landings for the decades?
But here's the scoop: Wall Street's mood got a significant lift, and it wasn't just the usual market swings. Tuesday brought a breath of fresh air, with US producer prices coming in softer than expected. It felt akin to finding a perfect breeze on a sweltering summer day, at least here in Bangkok.
As we tiptoed into this week, the big scare was the looming US inflation data. Everyone was debating whether it might slam the brakes on the Fed's dovish dreams for an upcoming rate cut.
Unless consumer prices pull off an acrobatic leap, the Fed is all set to slice rates next month. The real chatter isn’t about if they’ll cut but how deep they’ll carve. The cool inflation prints of late have practically rolled out the red carpet for the Fed to play catch-up and dish out a lavish 50 basis point rate cut extravaganza.
A Fed that can't—or won’t—loosen up soon is basically a Fed that's about to lose its market fan club, not just among the yield chasers but across the board. With the front-end rates practically shouting at Jerome Powell to get a move on, it's clear—Wall Street thinks the current policy is squeezing a bit too tight.
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