Markets Today: Stocks Higher after Favorable U.S. Deflator Report

Rich Asplund - Barchart - Fri Jun 30, 2023

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are up +0.59%, and Sep Nasdaq 100 E-Mini futures (NQU23) are up +0.86%.

Stocks are higher after this morning’s PCE deflator report was mildly favorable and could encourage the Fed to be less hawkish. The 10-year T-note yield this morning is down -1 bp after Thursday’s surge of +13 bp on Fed Chair Powell’s hawkish comments. U.S. stocks have some carry-over support from today’s +1.0% rally in European stocks.

Today’s May PCE deflator, the Fed’s preferred inflation measure, rose +0.1% m/m and +3.8% y/y, which was in line with market expectations. The May core PCE deflator rose +0.3% m/m, which was in line with market expectations, but the May core PCE deflator on a year-on-year basis rose by +4.6%, which was slightly weaker than market expectations of +4.7%.

The deflator report showed that inflation is going in the right direction, with the headline deflator easing to +3.8% y/y from April’s revised +4.3%, and the core deflator easing to +4.6% y/y from April’s +4.7%. Still, the Fed will remain worried about sticky core inflation, with the core deflator still at a very high +4.6% y/y, far above the Fed’s +2% inflation target.

May U.S. personal income rose +0.4% m/m, which was slightly stronger than expectations of +0.3%, although April was revised lower to +0.3% m/m from +0.4%. May U.S. personal spending rose by +0.1% m/m, slightly weaker than expectations of +0.2%, and April was revised lower to +0.6% m/m from +0.8%. May real personal spending was unchanged m/m after a revised +0.2% m/m increase in April.

The markets are discounting the odds at 84% for a +25 bp rate hike at the next FOMC meeting on July 25-26. The markets are anticipating a peak funds rate of 5.42% by November, which is +35 bp higher than the current effective federal funds rate of 5.07%.

China’s PMI reports overnight were roughly in line with market expectations but reinforced the view that China’s economy is losing steam after an initial post-Covid boom. China’s June manufacturing PMI rose +0.2 points to 49.0, which was in line with market expectations but remained below the expansion-contraction level of 50. China’s June non-manufacturing PMI fell -1.3 points to 53.2, weaker than market expectations for a decline to 53.5.

The June Eurozone CPI report of +0.3% m/m was in line with market expectations. The June CPI on a year-on-year basis eased to +5.5% y/y from May’s +6.1% y/y and was slightly weaker than market expectations of +5.6%. The June core CPI rose slightly to +5.4% y/y from May’s +5.3% but was slightly weaker than market expectations of +5.5% y/y.

The May Eurozone unemployment rate was unchanged from April at 6.5%, in line with market expectations.

Overseas stock markets are mixed. The Euro Stoxx 50 is up +1.0%. China’s Shanghai Composite index today closed +0.62%. Japan’s Nikkei Stock Index today closed down -0.14%.

Pre-Market U.S. Stock Movers

Nike (NKE) is down -2.5% in pre-market trading after issuing disappointing earnings and guidance, although its sales figures were better than expected.

Adobe (ADBE) is down -0.9% after UK regulators expressed competition concerns about Adobe’s acquisition of Figma.

Carnival (CCL) is up +3.0% after an upgrade by Jefferies to buy from hold.

XPeng (XPEV) is up more than +8% in pre-market trading after the company announced its new G6 electric SUV.

Citi initiated research coverage at a buy for Juniper Networks (JNPR), which jumped +1.4% in pre-market trading, and for Keysight Technologies (KEYS), which is up +1.0%. Citi initiated coverage at neutral for Cisco Systems (CSCO) (up +0.3% in pre-market) and Arista Networks (ANET) (up +1.7% in pre-market trading).

Accolade (ACCD) rose +13% after management issued stronger-than-expected guidance for Q2 revenue.

Today’s U.S. Earnings Reports (6/30/2023)

F45 Training Holdings Inc (FXLV), Constellation Brands Inc (STZ), Latch Inc (LTCH), and Accenture PLC (ACN).

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.