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Tamer Than Expected Inflation Data May Lead To Initial Jump On Wall Street
US Market
The major U.S. index futures are currently pointing to a higher open on Wednesday, with stocks likely to benefit from a positive reaction to a highly anticipated reading on U.S. inflation.
The futures surged following the release of a report from the Labor Department showing U.S. consumer prices unexpectedly came in flat in the month of July.
The Labor Department said its consumer price index was unchanged in July after jumping by 1.3 percent in June. Economists had expected consumer prices to edge up by 0.2 percent.
Compared to the same month a year ago, consumer prices in July were up by 8.5 percent, reflecting a bigger than expected slowdown from the 9.1 percent spike in June.
The annual rate of price growth was expected to slow to 8.7 percent from the four-decade high seen in the previous month.
Meanwhile, the report said core consumer prices, which exclude food and energy prices, rose by 0.3 percent in July after climbing by 0.7 percent in June. Core prices were expected to increase by 0.5 percent.
The annual rate of core consumer price growth was unchanged at 5.9 percent, while economists had expected an acceleration to 6.1 percent.
The tamer than expected inflation data is likely to lead to speculation that the Federal Reserve will slow the pace of interest rate hikes at its September meeting.
After ending Monday’s trading little changed, stocks moved mostly lower over the course of the trading session on Tuesday. The major averages all moved to the downside, with the tech-heavy Nasdaq showing a particularly steep drop.
The Nasdaq tumbled 150.53 points or 1.2 percent to 12,493.93 and the S&P 500 fell 17.59 points or 0.4 percent to 4,122.47. Meanwhile, the Dow posted a more modest loss, edging down 58.13 points or 0.2 percent to 32,774.41.
Technology stocks helped to lead Wall Street lower, as reflected by the sharp decline by the Nasdaq, which continued to give back ground after reaching a three-month intraday high in early trading on Monday.
Within the tech sector, semiconductor stocks turned in some of the worst performances, resulting in a 4.6 percent nosedive by the Philadelphia Semiconductor Index.
The sell-off by semiconductor came following a warning from Micron Technology (MU), with the memory chip maker tumbling by 3.7 percent.
Micron warned revenue for the current quarter may come in at or below the low end of its previous guidance, citing “macroeconomic factors and supply chain constraints.”
The news from Micron came after a warning from graphics chip maker Nvidia (NVDA) contributed to the pullback by the markets on Monday.
Computer hardware stocks also saw considerable weakness on the day, with the NYSE Arca Computer Hardware Index slumping by 2.2 percent after ending the previous session at a two-month closing high.
Outside of the tech sector, airline stocks moved sharply lower, dragging the NYSE Arca Airline Index down by 3.6 percent. The index also ended the previous session at its best closing level in two months.
Housing, biotechnology, and retail stocks are moved, while energy stocks bucked the downtrend despite a decrease by the price of crude oil.
The weakness on Wall Street also came as traders looked ahead to the release of the highly anticipated reading on U.S. consumer price inflation.
U.S. Economic Reports
With a sharp pullback in gasoline prices offsetting higher prices for food and shelter, the Labor Department released a report on Wednesday showing U.S. consumer prices came in flat in the month of July.
The Labor Department said its consumer price index was unchanged in July after jumping by 1.3 percent in June. Economists had expected consumer prices to edge up by 0.2 percent.
Compared to the same month a year ago, consumer prices in July were up by 8.5 percent, reflecting a bigger than expected slowdown from the 9.1 percent spike in June.
The annual rate of price growth was expected to slow to 8.7 percent from the four-decade high seen in the previous month.
Meanwhile, the report said core consumer prices, which exclude food and energy prices, rose by 0.3 percent in July after climbing by 0.7 percent in June. Core prices were expected to increase by 0.5 percent.
The annual rate of core consumer price growth was unchanged at 5.9 percent, while economists had expected an acceleration to 6.1 percent.
At 10 am ET, the Commerce Department is due to release its report on wholesale inventories in the month of June. Wholesale inventories are expected to jump by 1.9 percent.
The Energy Information Administration is scheduled to release its report on oil inventories in the week ended August 5th at 10:30 am ET.
Crude oil inventories are expected to edge down by 0.4 million barrels after climbing by 4.5 million barrels in the previous week.
At 11 am ET, Chicago Federal Reserve President Charles Evans is due to speak at a Drake University and the Greater Des Moines Partnership: Economic Update event.
The Treasury Department is scheduled to announce the results of this month’s auction of $35 billion worth of ten-year notes at 1 pm ET.
Stocks in Focus
Shares of The Trade Desk (TTD) are moving sharply higher in pre-market trading after the digital advertising firm reported better than expected second quarter revenues and provided upbeat guidance.
Tax preparation firm H&R Block (HRB) may also move to the upside after reporting fiscal fourth quarter results that beat estimates, increasing its quarterly dividend by 7 percent and announcing a $1.25 billion stock buyback.
On the other hand, shares of Coinbase (COIN) are likely to come under pressure after the cryptocurrency exchange operator reported a wider than expected second quarter loss on revenues that came in below expectations.
Videogame company Robolox (RBLX) is also seeing significant pre-market weakness after reporting a second quarter loss that was wider than expected and weaker than expected bookings, a key sales metric.
Europe
European shares have recovered from a weak start to trade higher on Wednesday, as a slew of corporate earnings beat expectations and data showed German consumer price inflation slowed as initially estimated in July.
German consumer price inflation slowed to 7.5 percent from 7.6 percent in June, final data from Destatis revealed, matching the flash estimate published on July 28. In May, headline inflation hit a record high 7.9 percent.
The European markets have also benefited from a positive reaction to the closely watched reading on consumer price inflation in the U.S.
While the German DAX Index has jumped by 1.1 percent, the French CAC 40 Index is up by 0.7 percent and the U.K.’s FTSE 100 Index is up by 0.4 percent.
Danish wind turbine maker Vestas has soared after saying it would sell its converters and control panels business to KK Wind Solutions.
Supermarket major Ahold Delhaize has also jumped after raising its full-year earnings and free cash flow guidance.
ABN Amro has also rallied. The Dutch bank reported a quarterly profit that beat analyst expectations despite rising costs.
Prudential has also risen. The British insurer warned of challenging conditions for the rest of the year after reporting an 8 percent increase in first-half operating profit.
Aviva has also spiked. The insurer unveiled plans to return more cash to shareholders after posting better-than-expected earnings for the first half of the year.
Similarly, Admiral Group has also surged after delivering a solid set of interim results.
Holiday group TUI has also gained after its EBIT loss narrowed for the third quarter of fiscal 2022.
Meanwhile, Sixt SE, a German car rental company, has slumped despite reporting higher second-quarter profit and revenues.
Asia
Asian stocks fell on Wednesday, as risk appetite remained in check ahead of key U.S. inflation data due out later in the day that could offer clues on the Fed’s next move on interest rates.
Chinese shares closed lower, with the benchmark Shanghai Composite falling 0.5 percent to 3,230.02.
China’s consumer inflation accelerated in July to the highest level in two years, while producer price inflation slowed to 4.2 percent from 6.1 percent in June, data showed earlier in the day.
The consumer price index rose an annual 2.7 percent in the month, up from a 2.5 percent increase in June.
Hong Kong’s Hang Seng Index slumped 2 percent to 19,610.84 amid concerns about rising tensions between China and the United States following last week’s Taiwan trip by Nancy Pelosi.
Japanese shares retreated as chip-related stocks followed their U.S. peers lower following a dismal forecast from Micron Technology. The Nikkei 225 Index fell 0.7 percent to 27,819.33, while the broader Topix ended 0.2 percent lower at 1,933.65.
Tokyo Electron, Screen Holdings and Advantest lost 3-4 percent. Sumitomo Forestry soared 8.5 percent and Rohto Pharmaceutical surged 14.4 percent on robust earnings.
Producer prices in Japan climbed an annual 8.6 percent in July, the Bank of Japan said in a preliminary report earlier in the day.
Seoul stocks tumbled as disappointing earnings and projections from big U.S. tech firms like Nvidia and Micron pointed to a further slowdown in global chip demand.
The Kospi dropped 0.9 percent to 2,480.88. Naver, Samsung Electronics, SK Hynix and LG Chem slid 1-3 percent. Hyundai Engineering & Construction shares surged 7.5 percent.
Australian markets ended lower, with miners and tech stocks pacing the declines. The benchmark S&P/ASX 200 Index fell 0.5 percent to 6,992.70, while the broader All Ordinaries Index closed 0.6 percent lower at 7,238.70. Block Inc. shares tumbled a little over 6 percent.
Falling iron ore prices weighed on the mining sector, with heavyweight BHP declining 1.3 percent. Lender Commonwealth edged up slightly after reporting an 11 percent jump in annual profit.
Commodities
Crude oil futures are falling $0.54 to $89.96 a barrel after slipping $0.26 to $90.50 barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,821.80, up $9.50 compared to the previous session’s close of $1,812.30. On Tuesday, gold rose $7.10.
On the currency front, the U.S. dollar is trading at 132.88 yen compared to the 135.05 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0339 compared to yesterday’s $1.0213.
