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On Tuesday, the Dow Jones (US30) Index gained 1.04%, while the S&P 500 (US500) Index closed 1.68% higher. The Nasdaq Technology Index (US100) closed yesterday at a positive 2.43%. Stocks found support on Tuesday thanks to lower bond yields after US producer prices for July rose less than expected, reinforcing expectations that the Federal Reserve will begin cutting interest rates next month. Strengthening in semiconductor stocks and technology mega majors on Tuesday also supported gains in the overall market. In addition, Starbucks closed higher by more than 24% following the appointment of a new CEO.

The July US FMCG price index declined to 2.2% y/y from 2.7% y/y in June, less than expectations of 2.3% y/y. Additionally, the July food and energy price index declined to 2.4% y/y from 3.0% y/y in June, better than expectations of 2.6% y/y.

On Tuesday, Atlanta Fed President Bostic made dovish comments that supported stocks, stating that he would likely be willing to support a Fed rate cut. Markets are awaiting the release of Wednesday's consumer price report, which should also help clarify the likely timing and size of any Fed interest rate cut. The July CPI is expected to be unchanged from June at 3.0% y/y, while the core July CPI, excluding food and energy, is expected to decline to 3.2% y/y from 3.3% y/y in June. Indicators that show only a slight cooling could reinforce fears that the Fed has derailed the economy by leaving rates at high levels for too long. This would increase recession fears, which could cause new volatility in the market and trigger more stock index sell-offs. The strong upward surprise would be worse for the market, as the Fed could not quickly reduce the rate even though the economy lost growth.

Equity markets in Europe were mostly up on Tuesday. Germany's DAX (DE40) rose by 0.48%, France's CAC 40 (FR40) closed higher by 0.35%, Spain's IBEX 35 (ES35) added 0.73%, and the UK's FTSE 100 (UK100) closed up 0.30%.

Frankfurt's DAX (DE40) index marked its sixth consecutive session in the green on Tuesday with strong support from technology and industrial giants. In spite of this, the indicator of economic confidence ZEW fell stronger than expected, as in the Eurozone and Germany, strengthening the danger of the economy's growth.

WTI crude futures fell below $79 a barrel on Tuesday, breaking a five-day winning streak. Traders weighed the potential glut amid escalating tensions in the Middle East. A monthly report from the International Energy Agency showed inventory drawdowns would weaken in the final quarter, and OPEC cut demand forecasts for this year and next. Due to weak demand in China, OPEC cut its 2023 demand growth forecast by 135,000 barrels a day and lowered its 2025 growth forecast to 1.78 million barrels a day.

Asian markets were predominantly up yesterday. Japan's Nikkei 225 (JP225) rose by 3.45%, China's FTSE China A50 (CHA50) closed at its opening level, Hong Kong's Hang Seng (HK50) gained 0.36% over yesterday and Australia's ASX 200 (AU200) was positive 0.17%.

The New Zealand dollar fell by 1.1% to around $0.60 on Wednesday after the Reserve Bank of New Zealand unexpectedly cut interest rates. The RBNZ cut the official money rate by 25 basis points to 5.25%, the first cut since March 2020. The central bank said price pressures are easing and expects annual inflation to return to a target range of 1% to 3% in the third quarter. The bank cautioned that policy should remain restrictive for some time but still forecasts the money rate at 4.92% by the end of the year and 3.85% by the end of 2025.

The Australian dollar is at three-week highs as it weakened on lower-than-expected US producer inflation data, which boosted bets on more aggressive interest rate cuts by the Federal Reserve. The Aussie also rose against the Kiwi after the Reserve Bank of New Zealand surprised markets by cutting its money rate.

• S&P 500 (US500) 5,434.43 +90.04 (+1.68%)
• Dow Jones (US30) 39,765.64 +408.63 (+1.04%)
• DAX (DE40) 17,812.05 +85.58 (+0.48%)
• FTSE 100 (UK100) 8,235.23 +24.98 (+0.30%)
• USD index 102.62 −0.52 (−0.50%)
   

Important events for today:

• – New Zealand RBNZ Interest Rate Decision (m/m) at 05:00 (GMT+3);
• – New Zealand RBNZ Monetary Policy Statement (m/m) at 05:00 (GMT+3);
• – New Zealand RBNZ Press Conference at 06:00 (GMT+3);
• – UK Consumer Price Index (m/m) at 09:00 (GMT+3);
• – UK Producer Price Index (m/m) at 09:00 (GMT+3);
• – Eurozone GDP (q/q) at 12:00 (GMT+3);
• – Eurozone Industrial Production (m/m) at 12:00 (GMT+3);
• – US Consumer Price Index (m/m) at 15:30 (GMT+3);
• – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
• – New Zealand RBNZ Gov Orr Speaks at 21:00 (GMT+3).

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