Markets.com Logo

Investors rotate into small caps on soft June US inflation

3 min read

Investors move on small cap stocks as June US inflation unexpectedly soft

 

Stock investors rotate into small caps after soft June US inflation reading

Is the Fed’s job done? The June US inflation figure came in really soft. Stock investors rotated out of big tech and into small caps – the Nasdaq tumbled 2% and the Russell 2000 jumped by almost 4%. It was a day of divergence.  

Following the release of the US inflation figure, Nvidia shares fell over 5%, weighing heavily on the tech-heavy Nasdaq, with 2-3% declines for other tech giants. Tesla slumped by more than 8%. European stock markets are higher on Friday morning, with the FTSE 100 climbing 0.35% to 8,251 as of the time of writing.

Gold rallied through $2,400 as the dollar softened and real yields declined.

 

Lowest US inflation reading in three years sees Treasury yields plunge, DXY drop

The lowest CPI inflation report in three years sent Treasury yields plunging and the dollar dipped aggressively lower to send major peers to their highest levels in months. 

The June CPI print fell to 3.3% and prices declined by 0.1% month-on-month. Shelter costs finally normalised. The odds of an interest rate cut by the Fed in September jumped from 70% to almost 90%. Is this the last mile? 

I’ve said for ages the Fed won’t push to get from 3% to 2%. The job has been done and they will accept slightly higher levels of inflation now. 

The question is why wait until September – the case for a cut has been building for some time, and the Fed seems overly cautious. Too loose for too long on the way in, too tight for too long on the way out.

 

US PPI due, banks kick off Q2 earnings season on Wall Street

US producer price inflation data is due later, whilst banks kick off Q2 earnings on Wall Street. Chinese exports surged to create the biggest trade surplus since 1990.

Bank of America is out with an upgrade on Apple, saying it expects a strong multi-year iPhone refresh cycle with an ageing installed base. It raised its target price on Apple stock to $256.

 

More Biden gaffes, sterling rallies to 1-year high vs. dollar

Elsewhere, Joe Biden made a few gaffes in his “big boy” press conference…calling Zelensky ‘President Putin’ and Kamala Harris “vice president Trump.” More on whether Biden runs in the latest Overleveraged podcast.

Sterling, already firmer on tough talk out of the Bank of England and some positive UK GDP figures, rallied to its highest in a year versus the dollar.

 


 

As for USDJPY – there was a massive move in the Japanese yen on the US inflation report – looks like the Bank of Japan used the data to buy some yen.

 

 


When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.  

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.


Risk Warning and Disclaimer: This article represents only the author’s views and is for reference only. It does not constitute investment advice or financial guidance, nor does it represent the stance of the Markets.com platform. Trading Contracts for Difference (CFDs) involves high leverage and significant risks. Before making any trading decisions, we recommend consulting a professional financial advisor to assess your financial situation and risk tolerance. Any trading decisions based on this article are at your own risk.

Related Articles