Stocks Rally as US Growth Strengthens and Inflation Comes in Below Expectations

US equities have rallied following a quiet start to the morning as investors digest stronger economic growth, accelerating private sector hiring and softer-than-expected core inflation. NASDAQ and Dow futures are both up 0.3%. Positive economic reports out of China have also added to the improving backdrop, while Treasury yields and the US Dollar are giving back some of their recent gains.

US Q2 GDP was revised upward to 2.2% from 1.5%, where the Street had expected it to remain. ADP private sector payrolls increased by 90K, exceeding the Street’s 70K forecast and accelerating from 36K previously. Core PCE inflation came in at 3.0%, below the Street’s 3.3% expectation. In China, Manufacturing PMI rose to 50.1 from 49.8, while Non-Manufacturing PMI increased to 50.2 from 49.0, bringing both measures back above the 50 threshold into expansion territory.

Overseas equity trading has been mixed. Japan’s Nikkei gained 1.9% and Hong Kong’s Hang Seng advanced 0.4%. In Europe, Germany’s DAX is down 0.4%, while the UK’s FTSE is steady.

Energy prices are rebounding after the US indicated it has no plans to ease sanctions against Iran, reducing expectations for a near-term peace deal. Crude Oil is up 1.0%, holding above $90.00/bbl, while Brent Crude has gained 0.3%, holding above $102.50/bbl. Gasoline is up 1.0%, regaining $3.30/gallon. Gold has climbed 1.0%, moving back above $4,200/oz, and Copper is up 0.3%, holding above $6.60/lb. Silver is slightly lower, down 0.1%.

The US 10-year Treasury yield has slipped back below 5.25%, while the 30-year yield has retreated below 5.60%. The US Dollar Index is down 0.3%, with the Euro and Loonie both gaining 0.2%.

US Chicago PMI is due at 9:45 am EDT, with the Street expecting an increase to 51.2 from 47.1. Thursday brings Manufacturing PMI reports from around the world and Nike’s earnings after the close. US Nonfarm Payrolls and Factory Orders round out the week on Friday.

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