Cooler inflation buys the Dow Jones Industrial Average nothing

The July Consumer Price Index (CPI) released matched the expectations, and the Dow Jones Industrial Average (DJIA) has been trading a few points below its previous close around 53,800 since the data came out. Headline prices increased by 0.1% in July compared to the 0.1% consensus, reversing the 0.4% decline observed in June, taking the annual inflation rate to 3.4% from 3.5%.

Core inflation rose by 0.2% for a 2.5% year-on-year increase, which is 10% softer than the June figure and in line with the forecast. Only the unadjusted index did not meet expectations, recording seven hundredths of a point below its own consensus.

The market reacted to this data with rate futures moving, shifting the odds for September 16th meeting closer to 58% on the hold side, after being almost even on Monday. The DJIA experienced a modest gain of 0.2% on the day, while the S&P 500 added 0.5% and the Nasdaq Composite increased by 0.5%, both driven by the artificial intelligence sector following two sets of favorable results.

CoreWeave (CRWV) rose 18% after reporting double-digit revenue growth for the second quarter, with an operating margin above expectations. Super Micro Computer (SMCI) climbed 13% on its fiscal first-quarter forecast, and Nebius (NBIS) gained 16%. However, none of these companies are part of the DJIA.

The index, which is price-weighted and composed of the 30 most actively traded stocks in the US, saw a similar pattern represented by Cisco Systems (CSCO), up over 2%. The price-weighting system means that a component's movement is valued in dollars rather than percentage points, so a 2% move in a lower-priced component equates to a few index points, making no difference to the index's performance. The broader averages are currently positive, while the DJIA remains in the red.

July's disinflationary trend was influenced by energy prices, which fell by 1.5% in July following a 5.7% decline in June. Crude Oil prices settled above the $83 mark for the fifth consecutive day, despite the closure of the Strait of Hormuz and increased demand in the Oman channel. The recent build-up of 17.4 million barrels in energy inventories, higher than expected, kept crude prices firm.

A barrel's resilience during an inventory surge is more a testament to geopolitical factors than market fundamentals, and trading remains robust in the face of the Strait of Hormuz closure. The next Fed meeting will cover a month where energy prices are less supportive.

Upcoming economic releases, such as the Producer Price Index (PPI) at 12:30 GMT today and initial claims at 202K from 199K, will provide further insights into the economic landscape. One of the three dissenting regional Fed presidents will speak at 12:15 GMT, and another at 12:40 GMT. Meanwhile, Retail Sales, Michigan sentiment, and the survey's inflation expectation will be released on Friday, offering further clues about consumer spending and inflation expectations.

The DJIA remains vulnerable to breaking the 54,000 barrier, with the next key support level at 53,800, with further defense at 53,500 and the 53,000 handle as the ultimate target.