Dow Jones Industrial Average climbs back over 38,300 as investors shrug off still-high PCE inflation
- Dow Jones determined to wrap up Friday in the green despite stubborn inflation.
- US PCE inflation remained higher than expected.
- Hopes for rate cuts now lean heavily on next week’s US NFP print.
The Dow Jones Industrial Average (DJIA) churned on Friday before pushing into the high end for the day as investors shake off still-high US Personal Consumption Expenditure (PCE) Price Index inflation. Markets are still pricing in a 44% chance of at least two rate cuts from the US Federal Reserve (Fed) this year, with 60% odds of a first rate trim in September according to the CME’s FedWatch Tool.
Read more: US Core PCE inflation holds steady at 2.8% vs. 2.6% expected
US Core PCE Price Index inflation held steady at 2.8% for the year ended in March, holding above the forecast decline to 2.6%. Headline PCE Price Index inflation also rose to 2.7% over the same period, climbing from 2.5% and accelerating above the forecast 2.6%.
Despite the uptick in a key inflation metric, market risk appetite remains high and rate markets are leaning into current rate cut expectations. Despite still-high inflation, price growth is still lower than many investors feared, and market participants will be increasingly focused on next Friday’s US Nonfarm Payrolls (NFP) report. A still-tight US labor market will have investors looking for slack in US labor figures to help push the Fed towards a first rate cut by September.
Dow Jones news
With earnings season in full swing, equities remain bullish overall as the trading week draws to a close. Two-thirds of the 30 securities that comprise the Dow Jones are in the green on Friday, with Amazon.com Inc. (AMZN) up around 3.7% at the time of writing and trading near $180.10 per share. Microsoft Corp. (MSFT) follows closely behind, gaining about 2.75% on the day to trade around $410.00 per share.
On the downside, Intel Corp. (INTC) is leading the Dow Jones board into the red, declining 9.7% to trade at $31.70 per share after the tech company released a weaker-than-expected forecast for the current quarter. Intel is expecting quarterly revenue between $12.5 and $13.5 billion, whereas market forecasts were hoping for at least $13.6 billion. Intel also expects adjusted earnings per share to fall below Wall Street forecasts.
Dow Jones technical outlook
The Dow Jones is trading well within the week’s price range, setting Friday’s low bids at 38,048.33 before recovering into an intraday high of 38,335.71. The major equity index is still down slightly from the week’s peak prices at 38,556.80, but is recovering firmly after setting the week’s lows at 37,745.54 on Thursday’s pullback.
The Dow Jones is set to snap a three-week losing streak, and on pace to close just north of the 38,300.00 handle after a 5.8% decline top-to-bottom from 39,887.49 that began in mid-March.
Dow Jones five-minute chart
Dow Jones hourly chart
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.