Stocks Up as Inflation Expectations Fuel Fed Bets: Markets Wrap

Producer Prices Rise Slightly More Than Forecast on Margins
Consumer Sentiment Falls to Eight-Month Low, Inflation Eases

Stocks rose and bond yields fell as the latest economic readings reinforced speculation that the Federal Reserve might cut rates as early as September. The S&P 500 topped 5,600 after sliding almost 1% in the previous session, with smaller firms continuing to outperform megacaps. However, banks faced challenges, as Wells Fargo & Co. warned it wouldn’t be able to reduce costs as quickly as forecasted, and JPMorgan Chase & Co. missed key metrics like net interest income despite posting record profit. Citigroup Inc. also indicated that costs for the year are likely to be at the high end of the previously provided range.

Consumer expectations for inflation over the next year fell for a second month to 2.9%, with costs rising at an annual rate of 2.9% over the next 5 to 10 years, also edging down from the prior month. Earlier data showed US producer prices climbed slightly more than forecast, but categories used to calculate the Fed’s preferred inflation measure, the personal consumption expenditures price index, were not as concerning.

Treasury 10-year yields declined two basis points to 4.19%. The pound reached its strongest level in a year versus the dollar and the highest in almost two years against the euro. Japan likely intervened in currency markets to support the yen soon after US inflation figures were released Thursday, according to a Bloomberg analysis of central bank accounts.

Corporate Highlights:

• AT&T Inc. (T) experienced a significant data breach, separate from one earlier this year, involving call and text records of nearly all mobile-phone users for a six-month period in 2022, marking one of the largest breaches of private communications data.
• Boeing Co. (BA) notified some 737 Max customers of additional delivery delays for aircraft due in 2025 and 2026, signaling prolonged production recovery challenges.
• Deutsche Lufthansa AG (LHA.DE) cut its profit outlook for the full year and warned of increasing challenges to break even at its German unit due to higher unit costs and falling ticket prices.
• Rio Tinto Group (RIO) is exploring potential bids for companies including Teck Resources Ltd., according to Sky News.
• Novo Nordisk A/S’s (NVO) Ozempic was linked to lower rates of dementia and other mental health benefits in a University of Oxford study, raising expectations for the diabetes drug’s ancillary benefits.
• Samsung Electronics Co.’s (005930.KS) largest union is urging employees at an advanced AI memory chip plant to strike, changing tactics after their campaign for higher pay showed signs of waning.
• Taiwan Semiconductor Manufacturing Co.’s (2330.TW) $420 billion equity rally this year will face a valuation test next week when it reports earnings, with analysts expecting a raised full-year sales forecast.