U.S. stock futures inch up ahead of CPI data that could show inflation at 40-year high

U.S. equity index futures inched higher on Wednesday, though trading was timid ahead of U.S. data that could show stubborn inflation forcing a faster pace of interest rate rises from the Federal Reserve.

How are stock-index futures trading
  • S&P 500 futures
    rose 9.5 points, or 0.3% to 3,834

  • Dow Jones Industrial Average futures
    gained 68 points, or 0.2% to 31,035

  • Nasdaq 100 futures
    added 40 points, or 0.4% to 11,820

On Tuesday, the Dow industrials
fell 193 points, or 0.62%, to 30,981, the S&P 500
declined 0.9% to 3,819, and the Nasdaq Composite
dropped 0.9%, to 11,265.

The S&P 500 has lost 83.82 points, or 2.1%, over the last three trading days.

What’s driving markets

The U.S. corporate earnings season kicks into gear on Thursday, but for now inflation, in the shape of the June consumer price index report, is the focus for traders.

Stocks have endured a miserable year to date, with the benchmark S&P 500
down close to 20%, battered by persistent inflation concerns and other headwinds.

“Heading into CPI and earnings, after markets had climbed a wall of worry since mid-June, they seem to be losing a bit of footing again over the last few days as fears of a recession dominate again, alongside fears of aggressive rate hikes by central banks, rising Covid cases in China and the prospect of Russia cutting off Europe’s gas,” said Jim Reid, market analyst at Deutsche Bank.

The International Monetary Fund on Tuesday warned that a surge in inflation poses “systemic risks” to the U.S. economy, a concern not lost on the Federal Reserve as it seeks to damp rising prices by sharply raising borrowing costs. The Fed’s tighter policy trajectory has removed liquidity from the market and helped pressure equity valuations.

The CPI report, due at 8.30am Eastern, is expected to show year-on-year inflation of 8.8%, up from 8.6% in June.

“Remember that it was last month’s much stronger-than-expected report that sparked a tumultuous market reaction that culminated in the Fed moving by 75bps at a single meeting for the first time since 1994, having previously only signalled a 50bps move. So any further surprises today could have a big impact,” Reid told clients in a note.

Market anxiety is elevated ahead of the data. The CBOE Volatility Index
a gauge of expected S&P 500 volatility, was trading at 27.42, off recent highs but well above its long term average around 20.

“A further rise in the U.S. consumer prices will certainly revive the Fed hawks today, push the U.S. dollar higher and equities lower. A softer-than-expected figure, on the other hand, could…result in a much-awaited pause in the dollar rally, and a rebound in equities before big US banks start releasing their quarterly results on Thursday,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank, told clients in a note.

“In both cases, the market volatility will likely remain high, and the visibility likely remain low especially when you add the lower summer trading volumes into that mix,” she added.

Companies in focus
  • Shares of IronSource Ltd.
     jumped 64% in premarket trades on Wednesday after the business app company agreed to be acquired by Unity Software Inc. in an all-stock deal valued at $4.4 billion. Unity stock is down about 3.8%.

  • Polestar Automotive Holding UK PLC
    shares went up 3.9% in premarket trading after the Swedish electric car company backed its full-year guidance for deliveries of 50,000 cars, as the company offered an update on its year-to-date performance.

Other markets
  • Bourses across Europe mostly followed Wall Street’s overnight retreat, leaving the Stoxx 600
    off 0.7%.

  • The U.S. 10-year Treasury yield
    fell 1.1 basis points to 2.965% as the risk aversion evident in U.S. stock futures encouraged flows into sovereign bonds.

  • The dollar slightly firmer versus the yen
    but softer against the euro
    which was steady after nearing parity in recent sessions. The ICE Dollar Index
    was holding near its highest level in nearly 20 years.

  • WTI crude
    added 1% to $96.75 a barrel having lost 8.5% over the previous two sessions on fears slowing economic growth would hit demand.

  • Gold
    went up 1% to $1,726.8 an ounce and Bitcoin
    was higher at around $19,811.

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