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Hotter-Than-Expected Inflation Data Likely To Weigh On Wall Street
US Market
The major U.S. index futures are currently pointing to a sharply lower open on Tuesday, with stocks likely to come under pressure after ending the previous session narrowly mixed.
The futures showed a significant move to the downside following the release of a highly anticipated Labor Department report showing consumer prices in the U.S. increased by slightly more than expected in the month of January.
The Labor Department said its consumer price index rose by 0.3 percent in January after inching up by 0.2 percent in December. Economists had expected consumer prices to edge up by 0.2 percent.
Excluding food and energy prices, core consumer prices climbed by 0.4 percent in January after rising by 0.3 percent in December. Core prices were expected to increase by 0.3 percent.
While the report also showed the annual rate of consumer price growth slowed to 3.1 percent in January from 3.4 percent in December, economists had expected the pace of growth to slow to 2.9 percent.
The annual rate of core consumer price in January came in unchanged from the previous month at 3.9 percent. The pace of core price growth was expected to decelerate to 3.7 percent.
With Federal Reserve officials repeatedly saying they need more “confidence” inflation is slowing before lowering interest rates, the data is likely to further reduce optimism about a near-term rate cut.
CME Group’s FedWatch Tool is currently indicating just a 5.5 percent chance of a quarter point rate cut in March, while the chances of a quarter point rate cut in early May have fallen to 32.3 percent.
Stocks showed a lack of direction over the course of the trading session, with the major averages bouncing back and forth across the unchanged before eventually closing narrowly mixed.
The Nasdaq and the S&P 500 had been poised to set new record closing highs but pulled back into negative territory in afternoon trading.
While the Nasdaq fell 48.12 points or 0.3 percent to 15,942.55 and the S&P 500 edged down 4.77 points or 0.1 percent to 5,021.84, the Dow rose 125.69 points or 0.3 percent to a record closing high of 38,797.38.
The choppy trading on Wall Street came as traders took a breather following recent strength, which has lifted the S&P 500 above 5,000 for the first time ever.
The tech-heavy Nasdaq has also shown a significant advance in recent sessions, closing in the on the record highs set in November 2021.
A lack of major U.S. economic data also kept some traders on the sidelines ahead of the release of several key reports in the coming days.
On Tuesday, the Labor Department is due to release its report on consumer price inflation in the month of January, which could have a significant impact on the outlook for interest rates.
Reports on retail sales, industrial production, producer price inflation and consumer sentiment are also likely to attract attention later in the week.
Among individual stocks, shares of Teva Pharmaceutical (TEVA) soared by 7.5 percent after Piper Sandler upgraded its rating on the pharmaceutical company to Overweight from Neutral.
Space company Rocket Lab (RKLB) also spiked by 8.8 percent after Citi resumed coverage of the company’s stock with a Buy rating.
On the other hand, shares of Big Lot (BIG) plunged by 28.0 percent after Loop Capital downgraded its rating on the discount retailer to Sell from Hold.
Despite the lackluster performance by the broader markets, tobacco stocks moved sharply higher on the day, driving the NYSE Arca Tobacco Index up by 3.5 percent.
Substantial strength was also visible among networking stocks, as reflected by the 2.5 percent surge by the NYSE Arca Networking Index.
Telecom stocks also showed a significant move to the upside, resulting in a 1.8 percent jump by the NYSE Arca North American Telecom Index.
U.S. Economic Reports
A highly anticipated report released by the Labor Department on Tuesday showed consumer prices in the U.S. increased by slightly more than expected in the month of January.
The Labor Department said its consumer price index rose by 0.3 percent in January after inching up by 0.2 percent in December. Economists had expected consumer prices to edge up by 0.2 percent.
Excluding food and energy prices, core consumer prices climbed by 0.4 percent in January after rising by 0.3 percent in December. Core prices were expected to increase by 0.3 percent.
While the report also showed the annual rate of consumer price growth slowed to 3.1 percent in January from 3.4 percent in December, economists had expected the pace of growth to slow to 2.9 percent.
The annual rate of core consumer price in January came in unchanged from the previous month at 3.9 percent. The pace of core price growth was expected to decelerate to 3.7 percent.
Europe
European stocks moved mostly lower earlier in the session and are seeing continued weakness following the release of the hotter-than-expected U.S. inflation data.
Meanwhile, the French unemployment rate held steady in the fourth quarter after rising in the previous two quarters, the statistical office INSEE reported earlier today.
The pound strengthened against its major peers after official data showed the U.K. jobless rate declined in the fourth quarter.
The ILO unemployment rate fell to 3.8 percent in the fourth quarter from 3.9 percent in the prior period, according to figures from the Office for National Statistics. The rate was also below economists’ forecast of 4.0 percent.
While the U.K.’s FTSE 100 Index is down by 0.4 percent, the French CAC 40 Index and the German DAX Index are down by 0.8 percent and 0.9 percent, respectively.
Randstad NV has moved to the upside. The Dutch staffing company said it would return 632 million euros ($680.8 million) to shareholders as part of its capital allocation policy,
Travel operator TUI Group has also risen after it reported a narrower loss for the first quarter amidst an increase in revenue on higher demand at improved prices and rates. In addition, the company reaffirmed its full-year guidance.
Thyssenkrupp Nucera has also gained. The hydrogen company said its first-quarter sales rose by more than a third due to rising demand for its electrolyser technology.
Meanwhile, Cairn Homes has fallen. The Irish homebuilding company announced that it has appointed Richard Ball as its chief financial officer, effective April 10.
Asia
Asian stocks ended mixed on Tuesday as many regional markets resumed trading after a long holiday weekend.
The dollar held steady ahead of U.S. CPI data due out later in the day, which is expected to show a further slowing of price pressures. Gold and oil were modestly higher in Asian trading.
With the U.S. economy proving resilient in 2023 and the labor market remaining remarkably solid, traders have pushed back their expectations for rate cuts from March to May or June.
Recent hawkish comments from Fed officials also brought back the “higher-for-longer” theme in interest rates.
Markets in mainland China remained closed for the Lunar New Year holiday, with trade expected to resume on Monday, February 19, Hong Kong markets are due to resume trading on February 14.
Japanese shares rallied as data showed producer prices in the country edged up 0.2 percent from a year earlier in January, beating the 0.1 percent consensus estimate and up for the 35th consecutive month.
The Nikkei 225 Index topped the 38,000 mark for the first time since the asset bubble burst in 1990 before closing 2.9 percent higher at 37,963.97. The broader Topix Index surged 2.1 percent to 2,612.03, led by tech-related shares.
Advantest rallied 2.7 percent and Tokyo Electron soared 13.3 percent, while tech investor SoftBank spiked 6.3 percent.
Seoul stocks moved notably higher, with the Kospi jumping 1.1 percent to 2,649.64 ahead of January’s U.S. inflation data due later in the day.
Australian markets fell for a third day running as healthcare stocks lost ground, offsetting gains in the banking and mining sectors.
Biotech giant CSL fell 2.8 percent to extend losses from the previous session after its ambitious phase 3 trial for a heart attack drug ended in failure.
Building products maker James Hardie Industries plummeted 8.5 percent after flagging uncertainty in the housing market.
The benchmark S&P/ASX 200 Index slipped 0.2 percent to 7,603.60, while the broader All Ordinaries Index closed 0.2 percent lower at 7,847.80.
Across the Tasman, New Zealand’s benchmark S&P/NZX 50 Index ended down 0.2 percent at 11,739.68.
A Reserve Bank of New Zealand survey showed inflation expectations in the country extended their decline on a 12-month and a two-year time frame for the first quarter of 2024.
Commodities
Crude oil futures are climbing $0.76 to $77.68 a barrel after inching up $0.08 to $76.92 a barrel on Monday. Meanwhile, after slipping $5.70 to $2,033 an ounce in the previous session, gold futures are edging up $1.40 to $2,034.40 an ounce.
On the currency front, the U.S. dollar is trading at 150.27 yen compared to the 149.35 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.0726 compared to yesterday’s $1.0772.
