Image Source: PexelsMARKETSU.S. stocks closed lower on Thursday after the Dow Jones Industrial Average (.DJI) briefly touched an intraday high of 40,000 for the first time. Cooler inflation data and robust corporate earnings had initially supported the market’s upward momentum. However, with much of the good news already factored in and ahead of earnings from NVIDIA (NVDA) (arguably the most pivotal stock globally), some profit-taking appeared to have set in across the broader index.Indeed, rate cut expectations have already shifted significantly, with a September rate cut fully priced in, and a second cut fully priced in by December, so perhaps we need some even cooler data to move the rate cut needles for November or July It’s worth noting, however, that May’s CPI data provided a chance to undershoot another high base. Unless there is a significant drop in the monthly inflation rate, inflation might stall or even start to rise again, pushing US yields higher and cutting the cross-asset rally short.While there’s a prevailing sense of deflation and many CPI indicators suggest easing inflation, we won’t have a definitive answer until next month’s data is released. Similarly, the recent declines in PPI and CPI components factored into the PCE have likely already been accounted for in the market. This dynamic leaves global investors in a “bad news is good news” trading mindset, with stock market bulls hoping that hard economic data eventually aligns with the weaker survey data, as it often does.Still, the relentless stream of economic data that has kept rate-cut speculators on their toes is now striking a favourable chord on Wall Street. Recent reports have indicated a sluggish start for the US economy in the second quarter, and encouraging news for a Federal Reserve seeking signs that it can reduce interest rates without jeopardizing a soft landing. The robust US economy, buoyed by consumer spending and near-record employment, has continually dismissed recession fears. However, this strength hasn’t been as effective in cooling down inflation.Recent data shows that new US home construction and manufacturing activity have been weaker than anticipated, while retail sales experienced a significant decline. Unsurprisingly, underlying inflation has decreased for the first time in six months, prompting investor jubilation and pushing stocks to record highs. The good news for stocks is that there is likely cooler data on the horizon if last month’s “soft” survey data holds any weight.The US economy has been steadily losing momentum and data has consistently fallen short of expectations lately, indicating that the economy is losing momentum as restrictive monetary policy finally starts to bite.
Weaker-than-expected data offers the Federal Reserve more leeway to consider rate cuts without risking a severe economic downturn.OIL MARKETSCrude oil prices ticked higher as the market considered declining inventories amid a weaker US economic landscape. Trader sentiment improved due to the second consecutive weekly decline in US crude oil stockpiles. Additionally, indications of easing inflation added to the risk-on sentiment. which continues to bouy cross asset markets However, the price action remained largely confined within a range trade mentality as participants speculated on OPEC’s next strategic decision.More By This Author:US Dollar Correction: Not The Time For A Bigger Sell-Off Yet
The Fed Will Stay Dovish
PPI To Test The Soft Landing Narrative
