Stocks Mixed As Markets Eye The Fed…..

U.S. stocks closed mixed following a slip in the major indices yesterday, as the markets took in another hotter-than-expected inflation read, courtesy of the June Producer Price Index. The markets took a cautious approach to the trading session as the Fed took center stage later in the day. Fed Chairman Jerome Powell began his two-day Congressional testimony on Capitol Hill but offered no major surprises for investors, as he acknowledged recent inflation pressures but reiterated the Central Bank’s pledge to maintain its highly-accommodative monetary policy, as was expected. The Fed also revealed its Beige Book report this afternoon, which indicated the U.S. economic recovery continued to strengthen, but pricing pressures were broad-based and grew more acute in the hospitality sector. Q2 earnings season continued to ramp up, as Bank of America, Wells Fargo & Company, Citigroup and Delta Air Lines offered mostly positive results. In other economic news, mortgage applications jumped last week. Treasuries gained ground to put some downside pressure on yields despite the hot inflation data, and the U.S. dollar gave back yesterday’s gain. Gold rose and crude oil prices were lower. Asia finished mostly lower and Europe ended mixed amid strength in Information Technology issues.

The Dow Jones Industrial Average advanced 44 points (0.1%) to 34,933, the S&P 500 Index gained 5 points (0.1%) to 4,374, and the Nasdaq Composite decreased 33 points (0.2%) to 14,645. In moderate volume, 870 million shares were traded on the NYSE and 4.4 billion shares changed hands on the Nasdaq. WTI crude oil fell $2.12 to $73.13 per barrel. Elsewhere, the gold spot price moved $15.10 higher to $1,825.00 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—lost 0.4% to 92.38.

Producer price inflation runs hot again, mortgage applications jump and the Fed was in focus…..

The Producer Price Index (PPI), showed prices at the wholesale level in June rose 1.0% month-over-month (m/m), above the Bloomberg consensus estimate calling for a 0.6% gain, and compared to May’s 0.8% increase. The core rate, which excludes food and energy, also rose 1.0% m/m, north of estimates of a 0.5% increase and versus the prior month’s 0.7% gain. Y/Y, the headline rate was 7.3% higher, topping projections of a 6.7% increase and compared to May’s 6.6% gain. The core PPI increased 5.6% y/y last month, exceeding estimates of a 5.1% increase and the prior month’s 4.8% rise.

The MBA Mortgage Application Index jumped by 16.0% last week, following the prior week’s 1.8% decline. The noticeable gain came as the Refinance Index surged 20.4% and the Purchase Index was 8.3% higher. The average 30-year mortgage rate fell 6 basis points (bps) to 3.09%.

Fed Chairman Jerome Powell began his two-day semi-annual Congressional monetary policy testimony before the House Financial Services Committee. In Powell’s prepared remarks released before the testimony, the Fed Chief notes that inflation has increased “noticeably” and will likely remain elevated in coming months before moderating. He pointed out that inflation is being temporarily boosted by base effects, as the sharp pandemic-related price declines from last spring drop out of the 12-month calculation. Powell also said strong demand in sectors where production bottlenecks or other supply constraints have limited production has led to especially rapid price increases, which should partially reverse as the effects of the bottlenecks unwind. He added that prices for services that were hard hit by the pandemic have also jumped in recent months as demand for these services has surged with the reopening of the economy. Powell said the Central Bank continues to expect that it will be appropriate to maintain the current target range for the federal funds rate until labor market conditions have reached levels consistent with its assessment of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.

“As always, in assessing the appropriate stance of monetary policy, we will continue to monitor the implications of incoming information for the economic outlook and would be prepared to adjust the stance of monetary policy as appropriate if we saw signs that the path of inflation or longer-term inflation expectations were moving materially and persistently beyond levels consistent with our goal,” the Chairman said. Powell added that it is continuing to increase its holdings of Treasury securities and agency mortgage-backed securities at least at their current pace until substantial further progress has been made toward its maximum-employment and price-stability goals. He stressed that these purchases have materially eased financial conditions and are providing substantial support to the economy. Q&A brought scant new details, as Powell reiterated much of what was contained in his prepared remarks, while also noting the Fed’s commitment to act if inflation expectations surge, as inflation angst was on the minds of several in Congress.

The markets have grappled with persistent signs of rising inflation pressures and the Fed’s insistence on focusing on fostering the recovery in the labor market and willingness on letting inflation run above target.

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