US stocks inched lower on Thursday following gains in the previous session on the news that inflation data for the world’s largest economy came in lower than expected.
The broad-based S&P 500 ended the day down less than 0.1 per cent, having closed 2.1 per higher on Wednesday. The Nasdaq Composite — which is weighted towards technology shares that are more sensitive to changes in interest rate expectations — dipped 0.6 per cent after closing up 2.9 per cent in a move that took its gains to roughly 21 per cent from a low in mid-June.
The small drop may indicate that traders believed the previous day’s relief rally on the news was slightly overdone, though Wednesday’s gains remained mostly intact.
“The possibility of a recession is still on the horizon. The Fed is still raising rates. A lot of the reasons we were selling off still exist,” said Lou Brien, a market strategist at DRW Trading.
Figures on Wednesday had shown that the US consumer price index rose 8.5 per cent year on year in July, a slower annual increase than the 9.1 per cent recorded for June and below economists’ forecasts. There was no increase in the CPI month on month to July, after a 1.3 per cent rise in June.
Fresh data on Thursday revealed that prices paid to US producers for goods and services registered an unexpected fall in July — declining 0.5 per cent month on month, on the back of lower petrol costs. This marked the first monthly decline for the US producer price index since April 2020.
On an annual basis, prices rose 9.8 per cent in July — lower than economists’ expectations of a 10.4 per cent increase and below June’s 11.3 per cent.
“I’m not sure this alone is a needle mover,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “It’s more just a confirmation that maybe the peak is in.”
Investors have been watching inflation data closely ahead of the Federal Reserve’s September monetary policy meeting for clues about the extent to which the central bank will raise borrowing costs to curb price growth. The Fed has lifted interest rates by 0.75 percentage points in consecutive meetings over the summer.
In European equity markets, the regional Stoxx 600 closed up 0.1 per cent. London’s FTSE 100 lost 0.5 per cent. In Asian markets, Hong Kong’s Hang Seng closed up 2.4 per cent.
“It’s encouraging for investors that you see some cooling of inflation but one swallow doesn’t make a spring,” said Guillaume Paillat, a multi-asset portfolio investor at Aviva, pointing to strong US labour market data released last week. “You’ve got to be cautious.”
Mary Daly, president of the San Francisco branch of the Fed, told the Financial Times on Wednesday that it was too early to “declare victory” over inflation. The top Fed official said a half-percentage point interest rate rise in September was her “baseline” but she did not rule out another 0.75 percentage point rise.
Other Fed officials also expressed caution, with Charles Evans, president of the Chicago Fed, saying on Wednesday that inflation remained “unacceptably” high.
In government debt markets, the yield on the policy-sensitive two-year US Treasury bond rose by 0.03 percentage points to 3.24 per cent. The yield on the 10-year benchmark Treasury note added 0.11 percentage points to 2.89 per cent.
In currency markets, the dollar lost a further 0.1 per cent against a basket of six currencies after declining on Wednesday.