Overview
Investors eagerly anticipated the Federal Reserve’s policy decision and subsequent press conference scheduled for later in the day, leading to mixed trading in the major U.S. stock indices shortly after the opening on Wednesday. They were particularly interested in Chair Jerome Powell’s remarks, hoping to gain insights into the state of the economy and the central bank’s future course of action.
At 13:45 GMT, the blue chip Dow Jones Industrial Average is trading 34101.96, down 110.16, or -0.32%. The benchmark S&P 500 Index is at 4375.89, up 6.88 or +0.16% and the tech-weighted Nasdaq is trading 13587.15, up 13.83 or +0.10%.
Federal Reserve, Producer Inflation Data
Encouraging inflation data buoyed the market, revealing a larger than expected 0.3% decrease in May’s producer price index (PPI), a key indicator of inflation. Economists had anticipated a decline of 0.1%, making the reported figure even more positive. Furthermore, May’s CPI report revealed the lowest annual increase in over two years. This reinforced investor optimism that the Fed would refrain from raising interest rates. CME Group’s FedWatch tool reflected market sentiment, with a 90% probability of the central bank maintaining the current target range of 5% to 5.25% for rates. This would mark a departure from the recent trend of ten consecutive rate hikes.
AMD Surges on Amazon Deal
AMD shares rose 2.6% premarket on reports of Amazon Web Services considering AMD’s AI chips. The company introduced new AI chips, set to ship later this year. Despite an initial decline, analysts, like Morgan Stanley’s Joseph Moore, remain optimistic. Moore projects AI revenues of $400 million next year, potentially surpassing the $1.2 billion estimate.
Short-term Outlook
The decline in wholesale prices reported by the Labor Department reinforced the market’s positive sentiment. In May, the producer price index fell 0.3%, surpassing the expected decline of 0.1%, indicating a gradual easing of inflation pressures in the U.S. economy. The decrease in goods prices was primarily driven by a 13.8% drop in the gasoline index. Excluding food and energy, the PPI rose 0.2%, aligning with estimates. However, when excluding food, energy, and trade services, the index remained flat.
Now the market shifts its focus to the Federal Open Market Committee (FOMC) statement expected the following day, and the market expects Jerome Powell’s responses during the press conference to provide further guidance.