Inflation Cools.

U.S. stocks rallied on Wednesday as cooler-than-expected consumer inflation lifted hopes that the Federal Reserve is nearing the end of interest-rate hikes.

?? DJIA +0.25%, S&P 500 +0.74%, NASDAQ +1.15%?

Stocks generally traded in positive territory on Wednesday but finished below their intraday highs in reaction to the release of the inflation report. The tech-heavy Nasdaq outperformed for the day and finished along with the S&P 500 at their highest levels in 15 months.

U.S. Treasury yields retreated significantly with short-duration yields leading the decline. The U.S. dollar also declined in reaction to the report.

Elsewhere, oil prices rose to their highest intraday levels since early May, driven by a combination of factors including weakness in the U.S. dollar, OPEC+ production cuts, and the U.S. Energy Information Agency reporting a 5.9 million barrel increase in crude oil inventories last week. Gold also moved higher.

The main market driver on Wednesday was the Consumer Price Index, which revealed that inflation accelerated at a slightly slower pace than expected by forecasters. According to the headline figure, consumer prices rose by +0.2% in June, at an annualized pace of +3.0%. Estimates projected a rise of +0.3% and +3.1% respectively.

• Key CPI Details: plane tickets and used vehicle prices fell, groceries were unchanged, the cost of dining (restaurants, take-out) rose rapidly, and housing costs were still sticky (rents up 8.3% in the past year but appear to be tapering off). For the full report please click here.

The core reading, which excludes volatile energy and food costs, was also cooler than expected. Core inflation decelerated +0.2% in June, with a year-over-year increase of +4.8%. This was the smallest core increase in nearly two years. Projections for these figures were for a monthly increase of 0.3% and a year-over-year rise of +5.0%. Notably, the core figure fell from +5.3% the month prior.

Investors also digested commentary from Federal Reserve presidents reacting to Wednesday’s inflation report. Tom Barkin of the Richmond Fed said inflation is still too high, despite the recent CPI data. He added that he is comfortable with doing more to bring inflation to the Fed’s 2% target.

Separately, Minneapolis Fed President Neel Kashkari delivered remarks focusing on 'high-inflation' stress tests for banks.

On the global central banking front, the Bank of Canada decided to raise interest rates on Wednesday. BoC Gov. Macklem stated that the central bank is ready to continue increasing rates, as the downward momentum in inflation is waning.

Back in the U.S., the Fed released its Beige Book, an anecdotal survey of national economic activity. The Fed’s business contacts said that activity rose slightly in late May and June, but expectations for growth going forward have declined. Contacts also report the labor market remains strong yet selective.

Looking Ahead

Investors had a lot to digest amid the euphoria of the latest release of this big CPI report. While inflation numbers came within or slightly better than expectations, markets generally anticipated this morning’s positive outcome.

Central banks still have major hurdles to overcome in their inflation fight. The advance in the commodity complex is certainly a headwind for inflation going forward—today’s continued rise in oil prices is in particular focus. Moreover, the stickiness of housing prices coupled with a labor market that remains strong poses important considerations for monetary policymakers.

This stickiness could continue to complicate core readings going forward. As we’ve said, the road to achieving the Fed’s 2% inflation target could be a long one for investors.

The Big Question: Will inflation flare up again in the coming months?

As we move into the tail end of the week, investors will look forward to wholesale inflation through PPI on Thursday and big-bank earnings on Friday.

It is still our view that markets are primed for a correction as markets have rallied significantly in the first half of the year, but this is not to say that it will set the tone for the second half of the year. Corporate earnings reports will also be very important, while markets continue to determine if the Federal Reserve will hike rates two more times this year.

Stay Tuned and Be Alert.??

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?? Today’s Market Dashboard

Today’s Market Dashboard is a collection of important data covering markets, the economy, and news items we’ve monitored throughout the trading day.

Economic Data

• CPI (YoY) (Jun): 3.0% (Forecast: 3.1%, Prior: 4.0%). MoM: 0.2% (F: 0.3%, P: 0.1%) S&P500 Strengthened, DXY & US 2-Year Yields Weakened
• Core CPI (YoY) (Jun): 4.8% (Forecast: 5.0%, Prior: 5.3%). MoM: 0.2% (F: 0.3%, P: 0.4%)
• Crude Oil Inventories: 5.946M (Forecast: 0.483M, Prior: -1.508M)
• 10-Year Note Auction: 3.857%, Prior: 3.791%

Wires?

• [16:01 ET] Fed's Mester doesn't comment on monetary policy in the speech on FedNow.
• [13:22 ET] China's Ambassador meets Senior US defense official at the pentagon and discussed defense relations and security issues - Pentagon Statement.
• [10:33 ET] EIA: US Crude oil stocks in the SPR last week fall to lowest since August 1983.
• [05:31 ET] Kremlin on whether Putin will visit China’s President Xi in China later this year: Now is a good time to keep good relations between China and Russia … Kremlin on possible Putin visit to China in September: When the dates are be agreed, the media will be informed.
• [22:09 ET – Jul 11] Japan's Chief Cabinet Sec. Matsuno: North Korea's missile test endangers not just regional peace and stability, but also the international community.

Source: FinancialJuice

Geopolitical Headlines

• NATO Summit Closes With Ukraine's Zelenskiy Touting 'Powerful' Meeting With Biden (RFE/RL)
• North Korean missile launch ‘risks destabilizing’ the region, White House says (POLITICO)
• Chinese intelligence hacked U.S. government emails in ‘significant’ breach (CNBC)
• Iran at odds with allied Russia after Moscow backs UAE in island dispute (CNBC)

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THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INVESTMENT ADVICE.?

???SOURCES:?MarketWatch, Investing.com, CNBC, FinancialJuice, FXStreet