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U.S. Stocks Extending Yesterday's Rally On Latest Inflation Data

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Stocks have shown a strong move to the upside in morning trading on Thursday, extending the rally seen in the previous session. With the continued advance, the major averages have reached their best intraday levels in three months.

The major averages have pulled back off their highs in recent trading but remain firmly positive. The Dow is up 289.81 points or 0.9 percent at 33,599.32, the Nasdaq is up 129.30 points or 1 percent at 12,984.10 and the S&P 500 is up 38.82 points or 0.9 percent at 4,249.06.

The continued strength on Wall Street comes after the Labor Department released a report showing an unexpected decrease in producer prices in the month of July.

The Labor Department said its producer price index for final demand fell by 0.5 percent in July after surging by a revised 1.0 percent in June. The decrease marked the first drop in producer prices since April 2020.

The pullback came as a surprise to economists, who had expected producer prices to edge up by 0.2 percent compared to the 1.1 percent jump originally reported for the previous month.

The report also showed the annual rate of producer price growth slowed to 9.8 percent in July from 11.3 percent in June. Economists had expected the annual rate of growth to slow to 10.4 percent.

Meanwhile, the Labor Department said core producer prices, which exclude prices for food, energy and trade services, crept up by 0.2 percent in July after rising by 0.3 percent in June.

The annual rate of core producer price growth also slowed to 5.8 percent in July from 6.4 percent in the previous month.

Following yesterday's tamer than expected consumer price inflation data, today's report has added to optimism that the Federal Reserve will slow the pace of its interest rate hikes next month.

CME Group's FedWatch Tool is currently indicating a 65.5 percent chance of a 50 basis point rate hike and a 34.5 percent chance of a 75 basis point rate hike.

Buying interest has also been generated in reaction to upbeat earnings news from Disney (DIS), with the entertainment giant surging by 7.7 percent.

The jump by Disney comes after the company reported fiscal third quarter results that exceeded analyst estimates on both the top and bottom lines. Disney also revealed plans to raise prices for its Disney+ and Hulu streaming services.

Meanwhile, traders have largely shrugged off a separate Labor Department report showed initial jobless claims climbed to their highest level in almost nine months in the week ended August 6th.

Oil service stocks have moved sharply higher in morning trading, driving the Philadelphia Oil Service Index up by 3.3 percent.

The rally by oil service stocks comes amid a notable increase by the price of crude oil, with crude for September delivery climbing $0.91 to $92.84 a barrel.

Significant strength has also emerged among computer hardware stocks, as reflected by the 2.4 percent spike by the NYSE Arca Computer Hardware Index. The index has reached its best intraday level in two months.

Semiconductor stocks are also extending the rally seen in the previous session, resulting in a 2.1 percent jump by the Philadelphia Semiconductor Index.

Housing, natural gas and banking stocks are also seeing considerable strength on the day, moving higher along with most of the other major sectors.

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Thursday, with the Japanese markets closed for a holiday. China's Shanghai Composite Index rallied by 1.6 percent, while Hong Kong's Hang Seng Index soared by 2.4 percent.

Meanwhile, the major European markets are turning in a mixed performance on the day. While the U.K.'s FTSE 100 Index is down by 0.5 percent, the French CAC 40 Index and the German DAX Index are both up by 0.2 percent.

In the bond market, treasuries have turned lower over the course of the morning after seeing initial strength. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 2.9 basis points at 2.815 percent after hitting a low of 2.730 percent.

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