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.
What you need to know today
Disinflation in process
U.S. headline inflation in June rose just 0.2% compared with May, and 3% from a year ago — the lowest level since March 2021. Both consumer price index figures were 0.1 percentage points lower than the Dow Jones estimate. Excluding food and energy prices, core CPI was 0.2% higher month on month and 4.8% higher on an annual basis.
Highest close this year
U.S. stocks advanced Wednesday, with the S&P 500 and the Nasdaq Composite closing at their highest level since April 2022, after the cooler-than-expected inflation report. Asia-Pacific markets traded higher Thursday too. Hong Kong's Hang Seng Index surged about 2.5%, leading gains in the region, while South Korea's Kospi added 0.85% as the country's central bank kept interest rates unchanged at 3.5%.
China's trade trickling dry
China's trade activity in June indicated the country's economic slump isn't over. The dollar value of China's exports plunged 12.4% compared with a year ago, far steeper than the 9.5% drop economists had expected as well as the 7.5% decline in May. Imports fared badly too. They sank 6.8% on an annual basis, more than May's 4.5% decline.
X, meet xAI
Elon Musk is already the CEO of Tesla and SpaceX as well as the owner of Twitter. Now, he'll have a new title to add to that list: leader of xAI, an artificial intelligence company that aims to "understand the true nature of the universe." xAI seems to be positioned as a rival to OpenAI, Google and Anthropic. Musk will share more information on the company during a Twitter Spaces chat Friday.
[PRO] It's not the end until the end
June's promising CPI reading has traders betting the Federal Reserve will stop its hiking cycle soon. But Wells Fargo Securities' Michael Schumacher cautions that it might be too soon to celebrate — and suggests traders pay attention to an asset that will benefit from the Fed's last rate hike.
The bottom line
Yesterday's CPI report, when viewed with last Friday's jobs report, suggests that it's time to update a piece of economic orthodoxy.
The Philips Curve is an economic concept that claims inflation will fall only if unemployment rises. It seems to underpin the Federal Reserve's economic projections. In their quest to tame inflation through higher interest rates, the Federal Reserve expects unemployment will rise to 4.1% by the end of this year.
Let's take a look at the actual jobs and inflation numbers.
June's unemployment rate was 3.6%, and has hovered between 3.4% — a 53-year low — to 3.7% since March 2022. Meanwhile, June's headline inflation was 3% annualized — its lowest in two years and a third of its peak in June 2022.
Those numbers seem to indicate that inflation can continue dropping without causing a spike in unemployment. Can we, then, be living out the "dream scenario of monetary policy inducing lower inflation ... without a recession"? Steve Sosnick, chief strategist at Interactive Brokers, thinks so. "At least as of now, it's hard to dissuade the market from being enthusiastic."
And enthusiastic markets were. The S&P 500 gained 0.74%, the Dow Jones Industrial Average added 0.25% and the Nasdaq Composite popped 1.15%. Both the S&P and Nasdaq hit a 52-week high, buoyed by traders' optimism that only one rate hike's left.
Traders are betting that there's an 78.8% chance the Fed will keep rates steady after meeting this month, according to the CME FedWatch Tool. Just Tuesday, that figure was around 72%.
If the producer price index, which comes out later today, shows prices falling further, then we could indeed see the end of the Fed's hiking cycle soon.
