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Softer Inflation Growth Spurs Equity Gains


Today's financial recap and tomorrow's financial outlook.

The US consumer price index in June rose 0.3% from the prior month, as expected, leaving the annual rate of change unchanged at 2.0%. However, because more than two-thirds of the topline gain in prices was due to the jump in gasoline prices during the month, core prices only rose by 0.1%. Because many market participants had been looking for the large gains in inflation to continue, interest rates and the US dollar fell from their pre-report levels. Gold also rose.

US equity futures trended higher overnight and continued to rise following the weaker-than-expected consumer prices report. Investors took the weaker inflation trend to indicate the Fed was not behind a rapidly improving economy that would require a quicker tightening process than is presently priced into the market. The S&P 500 (INDEXSP:.INX) momentarily reached a new record high of 1985 during the day, but did not close at that level. EU foreign ministers met in Brussels today to discuss the potential for further sanctions against Russia, but no concrete details emerged by the end of the trading session.

This morning activist investor Bill Ackman gave a presentation about Herbalife (NYSE:HLF) that was meant to illustrate similarities between the nutritional distribution company and former defunct energy trader Enron. Market participants were unimpressed with his substantial presentation, however, and the stock recorded its largest single day of gains in history, up 24.71%. The general thinking is that because Ackman was unable to provide any new information and the government has already investigated the company, and given it a clean bill of health, new negative developments are unlikely.

According to a WSJ article, federal regulators criticized Deutsche Bank (NYSE:DB) for a litany of financial reporting, audit, and oversight problems. The bank is one of the worst performing global financial stocks this year and lost another 2.7% in today's session following the news.

Apple (NASDAQ:AAPL) reported earnings after the close, recording EPS of $1.28, ahead of the $1.23 expected, and revenues of $37.4 billion, below the $38.03 billion expected. The company guided down on revenues for the coming quarter. Sales of iPads missed by a sizable margin, but iPhones numbers continue to show strong levels of growth.

Tomorrow's Financial Outlook

There are no major economic reports scheduled to be released tomorrow in the US.

The most important event for risk assets overnight is the preliminary July manufacturing PMI report for China. Today, Chinese stocks broke out thanks to an announcement by the government that it would allow government authorities to begin selling residential mortgage securities for the first time in seven years. Last month the manufacturing gauge recorded a reading of above 50, signaling expansion, for the first time this year. Additionally, the amount of Chinese economic reports that beat expectations has now surpassed the number that have not, so investors will be looking for this string to continue this month. Also of note is the Reserve Bank of New Zealand (RBNZ) rate decision in addition to the advance readings of eurozone services and manufacturing PMI's for July.

Tomorrow is a busy day on the earnings front as most major companies will report this week. Reports of note include Boeing (NYSE:BA), Delta Airlines (NYSE:DAL), Freeport-McMoran (NYSE:FCX), Dow Chemical (NYSE:DOW), Pepsi (NYSE:PEP), Qualcomm (NASDAQ:QCOM), AT&T (NYSE:T), Facebook (NASDAQ:FB), and Tractor Supply Co (NYSE:TSCO).

Twitter: @Minyanville

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No positions in stocks mentioned.

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