Stocks Surge Amid July PPI Slowdown; Rate Cut Speculation and Recession Fears Loom

On August 13th, U.S. time, U.S. stocks opened higher as the global financial community closely monitored the comprehensive slowdown in the July Producer Price Index (PPI). The PPI fell below expectations, hinting at potential interest rate cuts by the Federal Reserve in September. Notably, this slowdown was marked by a decrease in service costs for the first time this year.According to institutional surveys, there's a growing trend among U.S. stock investors to shift funds from equities to safer investments like bonds and cash. However, the optimistic outlook for the "Seven Giants" in the tech sector remains robust despite the sell-off.The major U.S. stock indices collectively opened higher. By 9:40 PM Beijing time, the Dow Jones Index rose by 0.47%, the Nasdaq climbed 1.15%, and the S&P 500 increased by 0.79%.In the commodities market, international spot gold and silver and crude oil futures saw broad declines. Analysts from ANZ Bank predicted that gold prices might reach a new high of $2,550 per ounce by year-end. They noted that the Fed’s rate-cut cycle would drive down U.S. Treasury yields and the dollar, positioning gold as a catalyst for long-term strategic investment.On Tuesday, data from the U.S. Bureau of Labor Statistics showed that the July PPI increased by 2.2% year-on-year, below the anticipated 2.3% and the previous figure of 2.6%. The month-on-month increase stood at 0.1%, compared to the previous and expected 0.2%. The core PPI rose 2.4% year-on-year, below the expected 2.6% and the previous 3%, remaining flat month-on-month—the most moderate rise in four months. Service sector costs declined by 0.2% month-on-month in July, marking the largest drop since March 2023. Following the data release, the dollar index fell briefly.While inflation pressures are gradually easing, concerns about an economic recession persist. Wall Street broadly anticipates a Fed rate cut in September to address economic challenges. However, there's significant debate among market participants regarding the extent of the rate cuts.The upcoming CPI data on Wednesday is eagerly anticipated, as it could spark significant market reactions. The inflation data could either trigger a large-scale sell-off or ignite a retaliatory rally. The impending release is of paramount importance to both the stock market and the Fed's policy outlook.David Roche, a strategist at Quantum Strategy, recently stated that the Fed is unlikely to cut rates to the desired level of 3.50%, expecting instead to maintain rates around 4.1%. He warned that due to the slowing U.S. economy, corporate profits might not meet expectations, exacerbating the risk of a bear market. Additionally, the AI sector has apparently entered a bubble phase, expected to burst within six months, contributing to the decelerating U.S. economic growth. Roche predicts a bear market with a potential 20% drop in U.S. stocks by 2025, possibly starting by the end of this year. In summary, the recent PPI data release has everyone on edge regarding potential rate cuts and future economic strategies, with multiple factors at play that could significantly impact market directions in the upcoming weeks.