A scene at the World Harvest Food Bank in Los Angeles, CA on July 27, 2023.
Katie McTiernan | Anadolu Agency | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Cooling inflation
The U.S. personal consumption expenditures price index rose just 3% year-over-year in June, and 0.2% from a month ago. Stripping out food and energy prices, core PCE was 4.1%, the lowest annual increase since September 2021, and rose 0.2% from May. The Federal Reserve follows the PCE closely because it tracks how people spend their money, instead of just how much goods cost.
Positive momentum for stocks
U.S. stocks rose Friday, giving all major indexes a winning week on the back of positive economic data. Asia-Pacific markets traded higher Monday. Hong Kong’s Hang Seng Index climbed 1.47%, and has breached the 20,000 level for the first time in over a month, at the time of publication.
Mixed activity for China’s economy
China’s official manufacturing purchasing managers’ index factory activity came in at 49.3 in July. That means factory activity contracted for a fourth consecutive month. The silver lining: activity expanded slightly when compared with June and was higher than expected. Non-manufacturing PMI was 51.5, signaling an expansion — but it was the slowest pace of growth this year.
India in lieu of China
As China’s economy grinds on, there’s less demand for commodities globally. But India’s economic growth — which is forecast to outstrip China’s by the end of this decade — might make up for some of that shortfall in demand, according to ANZ. Oil, coal, steel and iron are commodities most likely to benefit from India’s growth, the bank said.
[PRO] Jobs, Apple and Amazon
What’s next after the Dow Jones Industrial Average’s historic 13-day run of gains? That depends on the July jobs report, out Friday, and earnings reports from Big Tech companies Apple and Amazon. CNBC Pro’s Sarah Min breaks down what analysts are expecting from those data points releasing this week.
More signs are emerging that the Federal Reserve’s latest hike might be the last in a while.
The headline PCE figure for June came in at 3%, the lowest annual increase since March 2021. Notably, that’s just one percentage point over the Fed’s target of 2% inflation. In fact, goods and food prices decreased 0.1% for the month, contributing to a plunge of 0.8 percentage points in the headline number from May. This suggests that we might not be too far off from hitting the Fed’s goal.
Aside from the inflation data, the Commerce Department reported personal income rose 0.3%, slightly below expectations. That’s corroborated by the Labor Department, which said the employment cost index rose 1% in the second quarter, lower than the 1.1% estimate.
Markets cheered the news. The S&P 500 gained nearly 1%, the Dow Jones Industrial Average rose 0.5% and the Nasdaq Composite jumped 1.9%, buoyed by a rally in technology stocks. All three indexes ended the week in the green.
But having a breather from interest rate hikes is just half the battle won for Wall Street. A pause doesn’t mean a cut — for the foreseeable future, America will still have to live with the highest interest rates in more than 22 years. And “Shark Tank” investor Kevin O’Leary told CNBC he thinks more “things are going to break” under such pressure.
“I am just predicting — and I am very cautious on this — it will break down in the regional banks, which supports 60% of the economy,” O’Leary said.
Still, things are looking fine for the sector for now. The SPDR S&P Regional Banking ETF has increased more than 19% since the start of July. That puts it on track for its best month since October 2016.
O’Leary acknowledges that the economy is still sailing ahead. But, he added, “we’ve started to see the cracks.” Perhaps that’s another sign the Fed should indeed loosen its grip on monetary policy.