Dow Jones stages recovery on easing US PPI inflation print

Dow Jones rallied over 350 points in choppy trading on Tuesday.
Equities found higher ground on Tuesday as US inflation pressures ease.
After cooling PPI print, US CPI inflation remains in the barrel for Wednesday.

The Dow Jones Industrial Average (DJIA) found the gas pedal on Tuesday, rising over 350 points after US Producer Price Index (PPI) inflation eased more than expected in July. This gave stocks a chance to breathe and sent the DJIA into 39,700.00.

Stock news: The Home Depot scores another healthy quarter despite weakness among US consumers

US PPI inflation eased to 2.2% YoY in July, falling below the expected 2.3% and declining even further from the previous period’s revised 2.7%. Core PPI inflation also declined to 2.4% for the year ended in July, dropping below the forecast 2.7% and falling well below the previous 3.0%. Continued declines in US inflation pressure bolstered risk appetite in the US market session, and market bets of a 50 basis point double-cut in September from the Federal Reserve (Fed) rose to 55%, according to the CME’s FedWatch Tool.

US Consumer Price Index (CPI) inflation is the week’s key data print, slated for Wednesday. Core CPI inflation is forecast to tick down to 3.2% YoY from 3.3%. Markets have fully priced in at least a quarter-point cut from the Fed on September 18, and continued easing in inflation metrics will likely spark a further dogpile into bets of a double cut.

Dow Jones news

All but five of the Dow Jones’ constituent securities were in the green on Tuesday, with Walmart Inc. (WMT) falling -1.25% to $67.80 per share ahead of the retail giant’s latest earnings report slated for August 15.

Nike Inc. (NKE) rallied 5.6% on Tuesday to $78.83 per share as the shoe manufacturer sees a rebound in its share price on what investors are calling “brand momentum” following a shuffle of downstream production chains and new franchise shoe releases garnering significant search interest. Nike recently suffered a harsh blow after poorer-than-expected fiscal quarter performance which sent the stock tumbling from valuations above $90.00 per share.

Dow Jones price forecast

Tuesday’s Dow Jones rally dragged the major equity index into a one-week high on approach to 39,800.00 as bidders attempt to reclaim the 40,000.00 major price handle. The Dow Jones recently tumbled to its lowest prices in weeks near 38,400.00 after getting knocked off of all-time highs near 41,400.00.

The DJIA is trading back above the 50-day Exponential Moving Average (EMA) for the first time since tumbling below the technical average in early August. Long-run trends still lean in favor of buyers, with the index continuing to trade on the north side of the 200-day EMA at 38,166.00.

Dow Jones five-minute chart

Dow Jones daily chart

Economic Indicator

Consumer Price Index (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

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