As London/European traders head for the exits, the major European equity indices are closing mostly lower. There were no new record closes today, with France’s CAC 40 leading the declines.
The closing levels show:
-
German DAX: -0.17% at 26,346.30
-
France CAC 40: -0.46% at 8,674.95
-
UK FTSE 100: -0.10% at 10,833.16
-
Spain’s Ibex: -0.05% at 20,204.39
-
Italy’s FTSE MIB: -0.01% at 53,698.65
In the European debt market, benchmark 10-year yields are ending the session little changed and mixed. Yields are lower in Germany, France and Italy, while UK and Spanish yields are modestly higher:
-
Germany 10-year: 3.161%, -0.4 basis points
-
France 10-year: 3.979%, -0.6 basis points
-
UK 10-year: 4.976%, +0.6 basis points
-
Spain 10-year: 3.604%, +0.4 basis points
-
Italy 10-year: 3.946%, -0.5 basis points
The major economic event in the U.S. session was the July CPI report, which came in largely as expected but showed another modest improvement in the year-over-year inflation measures.
Headline CPI rose 0.1% month over month, matching expectations and rebounding from the -0.4% decline in June. On a year-over-year basis, CPI eased to 3.4% from 3.5%, also matching expectations.
Core CPI rose 0.2% month over month, in line with expectations and up from 0.0% in June. The year-over-year core rate eased to 2.5% from 2.6%, its lowest level since February.
The details showed housing costs remaining firm, with owners’ equivalent rent and rent of primary residence both rising 0.3% (contributed 2/3 of the gain). Energy prices fell 1.5%, including a 2.9% decline in gasoline prices. Airfares rose 2.2%, medical care increased 0.4%, and used-car prices rose 0.4%.
The report did little to strengthen the case for a September Fed rate hike. The market is now pricing in around a 40% probability of a September hike, down from 44% ahead of the CPI release.
That has helped push U.S. Treasury yields lower, led by the shorter end of the curve, which is more sensitive to changes in Fed expectations:
-
2-year yield: 4.191%, -2.7 basis points
-
5-year yield: 4.361%, -2.5 basis points
-
10-year yield: 4.668%, -1.6 basis points
-
30-year yield: 5.233%, -0.2 basis points
U.S. stocks are also trading higher as European traders head home. The gains are being led by technology, with the Nasdaq and Nasdaq 100 outperforming, while the Dow is little changed:
-
Dow Industrial Average: +0.02% at 53,807.37
-
S&P 500: +0.19% at 7,742.51
-
Nasdaq Composite: +0.41% at 26,553.61
-
Russell 2000: +0.33% at 3,037.00
-
Nasdaq 100: +0.72% at 29,736.59
In the foreign exchange market, the U.S. dollar is modestly lower but mixed overall, after earlier declines, fizzled out. EURUSD is little changed (-0.03%) near 1.1537, GBPUSD is marginally higher (+0.01%) at 1.3506, and USDJPY is down slightly (-0.03%)at 159.24. AUDUSD is up 0.10% at 0.7067 (higher USD). The NZD is the weakest of the major currencies, with NZDUSD down 0.27% (lower USD) at 0.5863.
Gold is one of the bigger beneficiaries of the softer rate outlook, rising around $50 to $4,421. Technically, gold has moved back above its 100-day moving average at $4,393.19, putting the buyers more firmly in control. Staying above that moving average keeps the focus on the 200-day moving average at $4,485.55 as the next major upside target.
Crude oil prices are trading at $83.18 near unchanged on the day
Overall, European equities are ending the day modestly lower, while the early U.S. tone is more constructive. The CPI report was largely in line with expectations, but the easing in the annual headline and core readings has reduced the perceived need for the Fed to tighten in September. That is contributing to lower Treasury yields, a modestly softer dollar, higher U.S. equities and another strong session for gold.
This article was written by Greg Michalowski at investinglive.com.
