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Stock market index bullish amid rising US inflation

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Analysis by Long Samnang, business manager at PP Link Securities

Stock market index bullish amid rising US inflation

The stock market index has been bullish this week amid the surge in the US annual inflation rate ended June, a new high since 1981.

According to the US Bureau of Labor Statistics, the Producer Price Index pushed annual inflation for wholesales to 11.3 per cent, while the Consumer Price Index left annual inflation at 9.1 per cent.

This has put the US Federal Reserve in a position to continue raising interest rates to tackle inflation.

As of Wednesday, the S&P500, the Nasdaq and the Dow Jones increased 2.58 per cent, 3.10 per cent, and 2.32 per cent, respectively.

However, the Chicago Board Options Exchange’s CBOE Volatility Index – often referred to as the “fear gauge” – dropped slightly to 26.88, with the risk of recession in the global economy edging up.

“Americans’ financial health held up well in the second quarter even as inflation sent gas and grocery bills higher and ate into savings for the first time since the pandemic, US bank executives said,” Reuters’ Elizabeth Dilts Marshall reported on Tuesday.

The London-based international news agency’s David Henry said: “Big US banks say net interest income, a key source of revenue, will continue to grow this year as interest rates rise, helping to buffer their bottom lines against declines in other key areas of the business.

He added that analysts viewed Bank of America as the big bank likely to benefit most from rising interest rates.

“As the second-biggest US bank, Bank of America tends to benefit more than competitors when interest rates rise, thanks to its large base of stable consumer deposits, many of which are interest-free.

“Its guidance came after JPMorgan Chase, Citigroup and Wells Fargo last week reported year-on-year net interest income increases ranging from 14 per cent to 26 per cent,” Henry said.

Based on technical analysis for the Nasdaq, for this week’s trading recommendation, investors can wait to buy at 12031.95, setting a stop-loss function at 11850.00 and a take-profit at 12308.00.

Alternatively, investors can buy at the current price and take a long position to seize greater profits as the stock index could to rise to 12500.00.

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