Russell 2000 leads again head of key inflation report

Wall Street rallied ahead of tomorrow's inflation data, boosted by encouraging data out of China, with the broadly based Russell 2000 leading. Bond prices were stronger. Oil prices rallied to around $75 per barrel, 10% up in the past 4 weeks.

Bottom-line: Risk-on.

TODAY’S MAJOR NEWS

Inflation and bank earnings upcoming

Wall Street chose to see the proverbial glass as “half-full” to start trade today, believing that China will sufficiently stimulate its economy, and believing that tomorrow’s inflation data will provide the necessary data to justify a pivot by the Federal Reserve. Wednesday morning sees the Consumer Price Index (CPI) for June, with June's Producer Price Index (PPI) out on Thursday morning, and the initial July reading for the University of Michigan's consumer sentiment index on Friday. We close out the weeks with major Bank earnings reports: JPMorgan, Wells Fargo, Citi, and BlackRock.

BRIC’s challenge Dollar economy

The global economy is slowing moving to a bipolar world, with China, Brazil, Russia, India and China (the original BRICs) and others challenging the dominant US Dollar economy. For example, the rapid growth of the BRICs bloc is helping China to better cope with decoupling from the West. This year’s annual BRICs summit, to be held August 22–24 in South Africa, will discuss developing a common currency for its members which account for nearly one third of global GDP, and to add new nations, including Ethiopia, Nicaragua, Venezuela, Argentina, Iran, Algeria, Saudi Arabia, and the United Arab Emirates.  Saudi Arabia may join BRICs as early as the August meeting, in what would be a major coup.

Small businesses optimistic, used car prices continue to decline

• The Small Business Optimism Index, run by the National Federation of Independent Business (NFIB), rose 1.6 points to 91 last month, the largest monthly improvement since August 2022
• Improving optimism boosted small businesses' investment plans and expectations for price increases
• One-in-four firms plan near-term capital spending, up from a three-year low earlier in the spring
• A third reported intentions to raise prices, a seven-month peak
• Used-car prices, tracked by Manheim’s Used Car Index, fell 10.3% over the past year, the tenth straight monthly decline and the biggest on record for June

Good news on China’s economy (for a change)

• Passenger car sales jumped 8.7% month-on-month in June in China, after 7.6% in May and 2.1in April – a glimmer of positive news for China’s economy
• June sales totaled 1.89 million, of which 665,00 were EVs
• Business sentiment also inched slightly higher in June, although from a relatively low level
• Positive momentum was seen in construction, transportation, real estate, and in information transmission and software, while additional declines were seen in retail sales, social services, and in accommodation and catering
• Cinemas, airports, tourism sites and theme parks are more crowded than they were in the second quarter

TODAY’S MAJOR MARKETS

Equity markets

• Markets rallied in morning trade, with the Russell 2000 again leading the way up 0.7%, while the S&P 500 and Nasdaq were up 0.4% and 0.2%, respectively
• Global markets were lackluster, with the Nikkei 225 and FTSE 100 unchanged, while the Dax was up 0.8%
• The VIX, Wall Street’s fear index, rose to 14.9

Currencies and Bonds

• The dollar index fell 0.2% against a basket of currencies to 101.7
• Euro/dollar was unchanged and Sterling/dollar rose 0.5%
• Bonds rallied, with yields on 2- and 10-year Treasuries falling back to 4.90% and 3.98% respectively

Commodities

• Crude oil prices were strong once again, up 2.6% to $74.9 per barrel, continuing a 4-week run
• Gold prices were up 0.3% at $1,937 per ounce
• Soybeans led the ag markets higher on expectations of tighter stocks in tomorrow's USDA WASDE report
• Corn and wheat garnered support from ideas that the Ukraine grain initiative is dead, as well as ideas that this year's corn yield was likely hurt to some degree by the weather stress in June

Analysis by Arlan Suderman, Chief Commodities Economist: Arlan.Suderman@StoneX.com

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com