Positive Reaction To Inflation Data May Be Extended In Early Trading

The major U.S. index futures are currently pointing to a higher open on Friday, with stocks poised to add to the gains posted in the previous session.

The markets may continue to benefit from a positive reaction to yesterday’s highly anticipated consumer price inflation data.

While the report showed the annual rate of consumer price inflation reached the highest level in nearly thirteen years, traders seem optimistic that the spike in prices will be transitory.

Federal Reserve officials have repeatedly downplayed the risks of prolonged inflation, leading to expectations that the central bank will not be in any hurry to tighten monetary policy.

The Federal Reserve is scheduled to hold its next monetary policy next week, which may still lead to some caution among investors.

Stocks fluctuated over the course of the trading session on Thursday but largely maintained a positive bias on the day before closing mostly higher. With the upward move, the S&P 500 reached a new record closing high.

The major averages all closed in positive territory, although the Dow inched up just 19.10 points or 0.1 percent to 34,466.24. The tech-heavy Nasdaq advanced 108.58 points or 0.8 percent to 14,020.33 and the S&P 500 rose 19.63 points or 0.5 percent to 4,239.18.

The higher close on Wall Street came following the release of a highly anticipated Labor Department report showing a bigger than expected increase in consumer prices in the month of May.

The Labor Department said its consumer price index rose by 0.6 percent in May after climbing by 0.8 percent in April. Economists had expected consumer prices to increase by 0.4 percent.

Excluding food and energy prices, core consumer prices climbed by 0.7 percent in May following a 0.9 percent advance in April. Core prices were also expected to rise by 0.4 percent.

The report also showed consumer prices in May were up by 5.0 percent compared to the same month a year ago, reflecting the biggest spike since August of 2008.

The annual rate of core consumer price growth also accelerated to 3.8 percent in May, which represents the biggest jump since June of 1992.

“Price increases stemming from the reopening of the economy and ongoing supply chain bottlenecks will keep the rate of inflation elevated and sticky as supply/demand imbalances are only gradually resolved,” said Kathy Bostjancic, Chief U.S. Financial Economist at Oxford Economics.

She added, “While we share the Fed’s view that this isn’t the start of an upward inflationary spiral, we look for inflation to remain persistently above 2% through 2022.”

Adding to positive sentiment about the economy, the Labor Department released a separate report showing another modest decrease in first-time claims for unemployment benefits.

The report showed initial jobless claims edged down to 376,000, a decrease of 9,000 from the previous week’s unrevised level of 385,000. Economists had expected jobless claims to dip to 370,000.

With the slight drop, jobless claims once again fell to their lowest level since hitting 256,000 in the week ended March 14, 2020.

Gold stocks moved sharply higher over the course of the session, resulting in a 2.7 percent spike by the NYSE Arca Gold Bugs Index. The rally by gold stocks came amid a modest increase by the price of the precious metal.

Substantial strength was also visible among biotechnology stocks, as reflected by the 2.4 percent jump by the NYSE Arca Biotechnology Index. The index ended the session at its best closing level in almost four months.

Pharmaceutical, software and semiconductor stocks also saw considerable strength on the day, while housing, airline and banking stocks showed notable moves to the downside.

Commodity, Currency Markets

Crude oil futures are slipping $0.10 to $70.19 a barrel after rising $0.33 to $70.29 a barrel on Thursday. Meanwhile, after inching up $0.90 to $1,896.40 an ounce in the previous session, gold futures are falling $6.20 to $1,890.20 an ounce.

On the currency front, the U.S. dollar is trading at 109.59 yen versus the 109.33 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2134 compared to yesterday’s $1.2170.

Asia

Asian stocks turned in a mixed performance on Friday, as U.S. bond yields eased despite data showing soaring U.S. consumer prices in May.

Investors bet spiking inflation would be temporary and the Federal Reserve will maintain its ultra-loose monetary policy for some time.

Chinese shares fell after data showed the country’s broader credit growth slowed in May. The benchmark Shanghai Composite Index dropped 21.11 points, or 0.6 percent, to 3,589.75, while Hong Kong’s Hang Seng Index ended up 103.25 points, or 0.4 percent, at 28,842.13.

Japanese shares edged lower on lingering worries about the pace of the domestic economic recovery and fresh concerns over potential tapering by the Federal Reserve. The Nikkei 225 Index ended marginally lower at 28,948.73, while the broader Topix closed 0.1 percent lower at 1,954.02.

Banks and cyclicals led losses. Machinery maker Kubota slumped 4.5 percent and Komatsu tumbled 3.2 percent. Toshiba gave up 1.6 percent after a probe revealed the company sought the government’s help to influence a shareholder vote.

Tech stocks such as Advantest and Tokyo Electron eked out modest gains, while drug maker Eisai soared 7 percent after a sharp fall in the previous session.

Australian markets recovered from early losses to end the day slightly higher as Melbourne exited the lockdown The benchmark S&P/ASX 200 Index ended up 9.80 points, or 0.1 percent, at 7,312.30, while the broader All Ordinaries Index inched up 18.40 points, or 0.2 percent, to 7,577.20.

Gold Miners Evolution Mining, Newcrest, Northern Star Resources and Regis Resources surged 3-4 percent as gold prices spiked overnight after U.S. inflation data.

Tech stocks also posted broad-based gains, with Afterpay and Appen climbing 4-6 percent. Avita soared 10.4 percent after the U.S. FDA approved the expanded use of the biotech’s flagship Recell skin system.

Banks ended lower, with ANZ and Westpac falling over 1 percent. Wealth manager AMP rose 1.3 percent. Woodside Petroleum and Santos rose about 1 percent after oil prices hit two-year highs. Casino operator Crown Resorts lost 1.5 percent as Victoria State widened an inquiry into its business practices.

Seoul stocks advanced as inflationary concerns eased ahead of the U.S. Federal Reserve policy meeting next week. The Kospi climbed 24.68 points, or 0.8 percent, to settle at 3,249.32 despite Bank of Korea Governor Lee Ju-yeol signaling his intention to tighten monetary policy. Among the top gainers, SK Hynix rallied 4.1 percent and LG Chem surged 5.3 percent.

Europe

European stocks are hovering near record highs on Friday, as bond yields fell from the United States to Europe despite signs of rising U.S. inflation.

Investors are hopeful that rising price pressures will be transitory and the Federal Reserve is unlikely to withdraw monetary support any time soon.

Investors await the Federal Reserve’s monetary policy meeting next week for more clues about the state of the economy and the policy outlook.

While the French CAC 40 Index has advanced by 0.8 percent, the U.K.’s FTSE 100 Index and the German DAX Index are both up by 0.6 percent.

Spanish hotel chain Melia has jumped. Chief Executive Gabriel Escarrer said at the annual shareholders meeting on Thursday that the company expects to return to profitability in June after 15 months in the red.

Sanne Group shares have also spiked in London. The specialist fund administrator confirmed that it has received a fifth unsolicited, non-binding proposal from Cinven regarding a possible all cash offer at a price of 875 pence per share.

Meanwhile, banks have moved broadly lower as Eurozone government bond yields fall after a dovish outcome to Thursday’s ECB meeting.

In economic news, the U.K. economy grew at the fastest pace since July 2020 as government restrictions affecting economic activity continued to ease in April, data from the Office for Statistics showed.

Gross domestic product rose 2.3 percent month-on-month in April, faster than the 2.1 percent expansion seen in March. The rate was forecast to improve to 2.2 percent.

The German economy is projected to grow faster than previously estimated on the expectation that the vaccination campaign will suppress the pandemic quickly and sustainably, Bundesbank said in its bi-annual report.

The central bank forecast the largest euro area economy to expand 3.7 percent in 2021 versus the 3 percent projected earlier. The outlook for 2022 was raised to 5.2 percent from 4.5 percent.

In 2023, real GDP growth is set to lose momentum but will still grow 1.7 percent, Bundesbank said.

U.S. Economic Reports

The University of Michigan is scheduled to release its preliminary report on consumer sentiment in the month of June at 10 am ET. The consumer sentiment index is expected to rise to 84.0 in June after dropping to 82.9 in May.

Stocks In Focus

Shares of Dave & Buster’s (PLAY) are seeing significant pre-market strength after the restaurant chain reported an unexpected fiscal first quarter profit.

Biotechnology company Biogen (BIIB) may also move to the upside after UBS upgraded its rating on the company’s stock to Buy from Neutral.

On the other hand, shares of Vertex Pharmaceuticals (VRTX) are moving sharply lower in pre-market trading after the drugmaker halted development of an experimental therapy for a rare genetic disorder that affects the lungs and liver.

Cruise operators may also see initial weakness after Royal Caribbean (RCL) said two passengers aboard its Celebrity Millennium cruise ship tested positive for Covid-19.