Tame Inflation Data May Lead To Initial Strength On Wall Street

The major U.S. index futures are currently pointing to a higher open on Wednesday, with stocks poised to extend the tech-led rally seen in the previous session.

The futures jumped following the release of a Labor Department report showing tame consumer price inflation in the month of February.

Concerns about inflation have contributed to the recent spike in bond yields, which has resulted in considerable volatility on Wall Street in recent sessions.

Bond yields pulled back near the unchanged line following the release of the inflation data after moving modestly higher earlier this morning.

Later in the day, trading may be impacted by reaction to the results of the Treasury Department’s auction of $38 billion worth of ten-year notes. Demand for the auction could have a notable impact on bond yields.

Traders are also likely to keep an eye on developments in Washington, with the Democrat-controlled House expected to pass the $1.9 trillion relief bill.

Following the sell-off seen on Monday, U.S. technology stocks showed a substantial move back to the upside during trading on Tuesday. The tech-heavy Nasdaq skyrocketed, bouncing off a nearly three-month closing low.

The Nasdaq soared 464.66 points or 3.7 percent to 13,073.82, recording its biggest single-day gain since last November. The S&P 500 also jumped 54.09 points or 1.4 percent to 3,875.44, while the Dow posted a much more modest gain, inching up 30.30 points or 0.1 percent to 31,832.74.

The rebound by the Nasdaq came as a pullback by long-term treasury yields contributed to significant strength among tech stocks.

The yield on the benchmark ten-year note showed a notable move to the downside after ending the previous session at its highest closing level in over a year.

Tech stocks fell sharply in reaction to the jump in bond yields seen on Monday, with the Nasdaq plunging even as the Dow jumped to a new record intraday high.

The subsequent pullback shown by yields inspired traders to pick up tech stocks at reduced levels despite lingering concerns about inflation and the outlook for interest rates.

Electric car maker Tesla (TSLA) showed a significant rebound after closing lower for five straight sessions, while tech giants Facebook (FB), Apple (AAPL) and Amazon (AMZN) also posted strong gains.

Semiconductor stocks turned in some of the market’s best performances, with the Philadelphia Semiconductor Index spiking by 6.1 percent after ending the previous session at its lowest closing level in over two months.

Software, networking and computer hardware stocks also saw significant strength, contributing to the rally by the tech-heavy Nasdaq.

Outside of the tech sector, gold stocks also moved sharply higher on the day, resulting in a 2.5 percent jump by the NYSE Arca Gold Bugs Index.

The rally by gold stocks came amid a substantial increase by the price of the precious metal, with gold for April delivery soaring $38.90 to $1,716.90 an ounce.

Retail and brokerage stocks also saw notable strength on the day, while energy stocks came under pressure amid a steep drop by the price of crude oil.

Commodity, Currency Markets

Crude oil futures are climbing $0.64 to $64.65 a barrel after slumping $1.04 to $64.01 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,717.40, up $0.50 compared to the previous session’s close of $1,716.90. On Tuesday, gold soared $38.90.

On the currency front, the U.S. dollar is trading at 108.59 yen compared to the 108.48 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1899 compared to yesterday’s $1.1901.

Asia

Asian stocks turned in a mixed performance on Wednesday despite a solid lead from Wall Street overnight. While Treasury yields stabilized, worries about policy tightening in China kept investors on tenterhooks.

Chinese shares ended a choppy session little changed as investors reacted to mixed inflation data and signs of policy tightening. The benchmark Shanghai Composite Index finished marginally lower at 3,357.74, while Hong Kong’s Hang Seng Index rose 0.5 percent to 28,907.52.

Consumer prices in China were down 0.2 percent year-on-year in February, the National Bureau of Statistics said. That exceeded expectations for a decline of 0.4 percent and was up from -0.3 percent in the previous month.

The bureau also said that producer prices were up an annual 1.7 percent – exceeding expectations for an increase of 1.5 percent and up sharply from 0.3 percent in January.

Japanese shares ended a volatile session on a flat note amid a year-end selloff by funds. The benchmark Nikkei 225 Index rose above the 29,200 level earlier in the day before finishing marginally higher at 29,036.56. The broader Topix closed 0.1 percent higher at 1,919.74.

Fanuc led gainers to rise 3.4 percent, while Sony, Advantest and KDDI rose 2-3 percent. Steel and mining stocks fell the most, with Nippon Steel, Kobe Steel and JFE Holding ending down between 2.5 percent and 3.4 percent. Index heavyweight Fast Retailing lost 2.4 percent.

Australian markets fell sharply after two straight days of gains. The benchmark S&P/ASX 200 Index ended down 57.10 points, or 0.8 percent, at 6,714.10, while the broader All Ordinaries Index dropped 53.20 points, or 0.8 percent, to 6,947.20.

The big four banks fell between 1.3 percent and 2 percent after central bank chief Philip Lowe reiterated the bank’s commitment to its three-year yield target. Woodside Petroleum, Santos and Oil Search tumbled 3-4 percent after crude oil prices dropped overnight.

Miners succumbed to heavy selling pressure, with BHP falling 2.8 percent, while Rio Tinto slumped 5.5 percent and Fortescue Metals Group plunged 8.3 percent.

Gold miners bucked the weak trend after gold futures rose sharply on Tuesday to reclaim the key price at $1,700 an ounce and post their first gain in five sessions on the back of a retreat in bond yields. Evolution Mining, Newcrest and Northern Star Resources all rose about 2 percent.

Tech shares rebounded after a rally by the tech-heavy Nasdaq Composite Index overnight. Buy-now-pay-later giant Afterpay soared 7.5 percent and Appen rallied 3.3 percent.

On the economic front, reports on building permits and consumer confidence painted a positive picture of the economy.

Seoul stocks fell for the fifth straight session as foreigners and institutions locked in profits amid lingering concerns over rising inflationary pressure.

The benchmark Kospi slid 18.00 points, or 0.6 percent, to close at 2,958.12, dragged down by tech and auto stocks. SK Hynix lost 2.6 percent and Hyundai Motor gave up 1.7 percent.

Europe

European stocks have moved mostly higher on Wednesday as U.S. Treasury yields stabilize after a successful auction of $58 billion in three-year notes. Investors are looking to a critical 10-year bond auction for further direction.

Closer to home, the European Central Bank is seen stepping up its pace of emergency asset purchases to counter rising bond yields when it meets on Thursday.

The German DAX Index is up by 0.4 percent and the French CAC 40 Index is up by 0.7 percent, although the U.K.’s FTSE 100 Index has bucked the uptrend and edged down by 0.2 percent

Shares of Adidas have jumped. After reporting a decrease in Q4 profit, the sportswear maker said it expects strong top-line growth, with sales expected to increase at a mid- to high-teens rate in fiscal 2021.

Vehicle maker MAN SE has also advanced. The company expects sales revenue to rise in fiscal 2021 due to volume-related factors.

BP Plc and Royal Dutch Shell have also moved to the upside as oil prices edge higher after falling for two straight sessions.

CLS Holdings has also moved to the upside. The company said the value of its portfolio of European commercial property rose by 1.4 percent during 2020.

Restaurant Group has surged. After reporting a much wider pre-tax loss for 2020, the casual dining operator is seeking to raise £175 million from its shareholders to pay down debt and use as a buffer in case of any Covid resurgence.

Meanwhile, Spanish clothing company Inditex has moved to the downside after it reported a 70 percent drop in 2020 net profit.

In economic news, French industrial production grew 3.3 percent month-on-month in January, reversing a 0.7 percent decrease in December, data from the statistical office Insee showed. Economists had forecast an increase of 0.5 percent.

U.S. Economic Reports

Consumer prices in the U.S. increased in line with economist estimates in the month of February, according to a report released by the Labor Department on Wednesday.

The Labor Department said its consumer price index climbed by 0.4 percent in February after rising by 0.3 percent in January. The increase in prices matched expectations.

Gasoline prices led the way higher once again, surging up by 6.4 percent in February following a 7.4 percent spike in January.

Excluding food and energy prices, core consumer prices inched up by 0.1 percent in February after coming in unchanged for two straight months. Economists had expected core prices to rise by 0.2 percent.

On an annual basis, consumer price growth accelerated to 1.7 percent in February from 1.4 percent in January but core price growth slowed to 1.3 percent from 1.4 percent.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended March 5th.

Crude oil inventories are expected to edged down by 0.8 million barrels after spiking by 21.6 million barrels in the previous week.

The Treasury Department is due to announce the results of this month’s auction of $38 billion worth of ten-year notes at 1 pm ET.

Stocks In Focus

Shares of Tupperware (TUP) are moving sharply lower in pre-market trading after the food storage products company reported fourth quarter earnings well short of analyst estimates.

Campbell Soup (CPB) may also move to the downside after the company reported fiscal second quarter earnings in line with estimates but slightly weaker than expected sales.

On the other hand, shares of United Natural Foods (UNFI) are seeing significant pre-market strength after the food wholesaler reported better than expected fiscal second quarter earnings.

Apparel retailer Express (EXPR) is also spiking in pre-market trading after reporting a narrower than expected fourth quarter loss.