Dow Jones Industrial Average trims recent declines on Thursday

The Dow Jones rose back above 46,600 on Thursday, trimming the previous session’s losses.
The Dow still remains in the green for the week, after a brief pullback from fresh record highs.
Key US CPI inflation data is in the barrel to end the week, and could complicate market hopes for rate cuts.

Joshua Gibson FXStreet

The Dow Jones Industrial Average (DJIA) found slim gains on Thursday, climbing around 150 points and clawing back some of the losses that pummeled the major equity index the previous session. Investors remain leery of a fresh steepening of the ongoing trade spat between the US and China, but another bumper earnings season and hopes for additional Federal Reserve (Fed) interest rate cuts are keeping investors on the bullish side.

Crude Oil prices surged on Thursday after China announced it would be suspending Oil purchases from Russia in the face of fresh sanctions from the US targeting major Russian Oil distributors. A rapid surge in Oil costs has sparked fresh concerns that inflation could develop into a complex problem for the Federal Reserve (Fed), which is actively seeking to deliver another two quarter-point interest rate cuts before the end of the calendar year. However, a sharp rise in energy costs could waylay the central bank as the US inflation landscape

US-China trade war worries remain in play

The move comes at a time when China stands to gain from handing a fig leaf to the Trump administration, which is still actively saber-rattling against China over trade disputes both real and imagined. Barring any last-minute changes or further social media proclamations from President Donald Trump, the US is heading into imposing another 155% tariff on Chinese goods imported into the US, as well as new export controls on Chinese purchases of US-produced software, to begin on November 1.

Earnings season continues to bolster investor confidence despite a few key misses. Tesla (TSLA) dropped 4% after a messy third-quarter earnings report, but around 80% of all S&P-listed companies that have posted Q3 earnings thus far have exceeded analyst expectations.

Next up: US CPI inflation

US Consumer Price Index (CPI) inflation is due on Friday and could add further pressure to rate cut hopes if the numbers come out hot. A general uptick in inflation has been brewing in the data for several months, complicating the Fed’s desired path toward its 2% inflation target and further interest rate cuts.

For the time being, rate watchers are still firmly entrenched in their faith in two more rate cuts through the end of the year. At the current cut, the CME’s FedWatch Tool shows that rate betters see a scant 1% chance that the Fed will keep interest rates unchanged at its upcoming rate-setting meeting, which concludes on October 29.

Dow Jones daily chart

Economic Indicator

Consumer Price Index ex Food & Energy (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally speaking, a high reading is bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

Author

Joshua Gibson

FXStreet

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

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