On Tuesday morning, before the market opened, the U.S. Bureau of Labor Statistics released July’s Producer Price Index (PPI) data, which came in lower than expected. As a result, the stock market saw significant gains. The Producer Price Index (PPI) increased by 0.1% compared to June, while the Core PPI, which excludes food and energy, remained unchanged. Economists had predicted a 0.2% rise for both indices. Year-over-year, overall PPI inflation was 2.2%, falling short of the expected 2.6% and down from June's revised figure of 2.7%. Core PPI inflation was at 2.4%, also below economists' expectations, who had anticipated it would hold steady at June's 3%.
This data is crucial for investors to monitor because, as Ed Carson from Investor's Business Daily explains, “The PPI report is important because many of its figures feed directly into the Federal Reserve's favorite inflation gauge, the core PCE price index.” The Federal Reserve closely monitors the core PCE, so if the PCE follows the downward trend observed in July's PPI, the likelihood of significant rate cuts will increase. Before the PPI report was released, markets were pricing in a 51.5% chance of a 50 basis point rate cut in September and a 48.5% chance of a smaller 25 basis point reduction. Following the report, the odds of a half-point rate cut rose to 54.5%, driven by the lighter-than-expected inflation data. This data boosted the stock market, with the S&P 500 climbing 1.5% and the NASDAQ surging by an impressive 2.3% during intraday trading.
Summary
The U.S. Bureau of Labor Statistics reported lower-than-expected July PPI data, leading to a surge in the stock market, with the S&P 500 rising 1.7% and the NASDAQ gaining 2.4%. The data also increased the likelihood of a half-point rate cut by the Federal Reserve in September to 54.5% from 51.5% before the report.
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