Stocks Fall on Hot Inflation Report, Mixed Earnings…..

U.S. equities finished lower following a much hotter-than-expected consumer price report that again heated up the inflation debate as to whether the Fed may be behind the curve. Q2 earnings season unofficially kicked off with mixed results from Dow members JPMorgan Chase & Co and Goldman Sachs Group. Meanwhile, in other equity news, PepsiCo posted stronger-than-expected earnings and guidance, while shares of Dow component Boeing Company suffered after announcing a temporary reduction in 787 aircraft as it reworks some undelivered jets. Elsewhere on the economic front, small business optimism for last month improved to an eight-month high. Treasuries were lower following the data and the U.S. dollar rallied, while gold was modestly higher and crude oil prices gained ground. Europe finished mixed in a choppy session, while markets in Asia were higher.

The Dow Jones Industrial Average declined 107 points (0.3%) to 34,889, the S&P 500 Index lost 15 points (0.4%) to 4,369, and the Nasdaq Composite decreased 56 points (0.4%) to 14,678. In moderate volume, 780 million shares were traded on the NYSE and 4.5 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.15 to $75.25 per barrel. Elsewhere, the gold spot price moved $2.30 to the upside to $1,807.90 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—gained 0.6% to 92.79.

Consumer price inflation runs hot again, small business optimism unexpectedly improves…..

The Consumer Price Index (CPI) rose 0.9% month-over-month (m/m) in June, topping the Bloomberg consensus estimate calling for a 0.5% gain and May’s unrevised 0.6% increase. The core rate, which strips out food and energy, was also up 0.9% m/m, versus expectations of a 0.4% gain and above May’s unadjusted 0.7% rise. Y/Y, prices were 5.4% higher for the headline rate, exceeding forecasts projecting a 4.9% increase and May’s unrevised 5.0% rise. The core rate was up 4.5% y/y, north of projections calling for a 4.0% gain and May’s unrevised 3.8% increase.

The Bureau of Labor Statistics said used car and truck prices continued to rise sharply, increasing 10.5% in June, accounting for more than one-third of the headline figure’s increase, while m/m food prices accelerated. The report noted that many of the same categories of prices continued to increase, with the rise in used vehicles and food being accompanied by gains in new vehicle prices, airline fares, and apparel. Medical care and household furnishings prices were among the few major components which decreased in June.

The National Federation of Independent Business (NFIB) Small Business Optimism Index for June improved to 102.5 from May’s 99.6 level, and compared to estimates of a dip to 99.5. The index hit the highest level since October 2020 as owners expecting better business conditions over the next six months increased to a net negative 12.0% while 46.0% of owners reported unfilled job openings. The NFIB said, “Small businesses optimism is rising as the economy opens up, yet a record number of employers continue to report that there are few or no qualified applicants for open positions.” The report also noted that owners are also having a hard time keeping their inventory stocks up with strong sales and supply chain problems, while the net percent of owners raising average selling prices increased seven points to a net 47%, the highest reading since January 1981.

Treasuries finished lower following the inflation data, and after a recent rally that has applied noticeable downside pressure on yields. The yield on the 2-year note rose 3 basis points (bps) to 0.25%, the yield on the 10-year note was 5 bps higher at 1.41%, and the 30-year bond rate advanced 4 bps to 2.03%.

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