Relatively Tame Inflation Reading May Lead To Strength On Wall Street

The major U.S. index futures are currently pointing to a higher open on Wednesday, with stocks likely to move to the upside after closing mixed for three straight sessions.

The futures saw a positive reaction to the Labor Department’s highly anticipated consumer price inflation report, which showed consumer prices increased in line with economist estimates.

The Labor Department said its consumer price index climbed by 0.5 percent in July after jumping by 0.9 percent in June.

Economists had expected consumer prices to rise by 0.5 percent following the advance in the previous month, which reflected the biggest increase since June of 2008.

Compared to the same month a year ago, consumer prices in July were up by 5.4 percent, unchanged from the annual rate of growth seen in June. The pace of growth was expected to dip to 5.3 percent.

Excluding higher food and energy prices, core consumer prices rose by 0.3 percent in July after surging by 0.9 percent in June. Economists had expected core prices to increase by 0.4 percent.

The annual rate of growth in core prices slowed to 4.3 percent in July from 4.5 percent in June, matching economist estimates.

While the pace of core consumer price growth remains well above the Federal Reserve’s 2 percent target, traders may see the modest slowdown as a sign the central bank will not be in a hurry to scale back stimulus.

The Fed’s asset purchase program has helped prop up the markets throughout much of the coronavirus pandemic, making traders wary of any signs of potential tapering.

The recent resurgence in coronavirus cases may weigh on the economy, leading the Fed to put off tapering plans and allowing stocks to continue to climb to record highs.

After closing on opposite sides of the unchanged line for two straight sessions, the major U.S. stock indexes turned in another mixed performance during trading on Tuesday. While the Dow and the S&P 500 reached new record highs, the tech-heavy Nasdaq moved to the downside.

The Dow moved higher early in the session and remained firmly positive throughout the day before closing up 162.82 points or 0.5 percent to 35,264.67. The S&P 500 fluctuated over the course of the session but managed to inch up 4.40 points or 0.1 percent to 4,436.75.

Meanwhile, the Nasdaq came under pressure after seeing initial strength and ended the day down 72.09 points or 0.5 percent at 14,788.09.

The advances by the Dow and the S&P 500 may have partly reflected continued economic optimism following last Friday’s upbeat monthly jobs data.

News that the Senate has approved a $1 trillion infrastructure bill may also have generated some positive sentiment. The package now heads to the House, where it faces an uncertain future.

Buying interest was somewhat subdued, however, as traders looked ahead to the release of a Labor Department report on consumer price inflation in the month of July on Wednesday.

Economists currently expect consumer prices to climb by 0.5 percent in July after advancing by 0.9 percent in June. The annual rate of consumer price growth is expected to slow to 5.3 percent from 5.4 percent.

Core consumer prices, which exclude food and energy prices, are expected to rise by 0.4 percent in July following a 0.9 percent increase in June. Year-over-year core price growth is expected to drop to 4.3 percent from 4.5 percent.

The Labor Department is scheduled to release a separate report on producer price inflation in the month of July on Thursday.

The inflation data could have an impact on the outlook for monetary policy, although the next Federal Reserve meeting is not scheduled until September.

Concerns the Fed may begin scaling back its asset purchases sooner than currently expected may have weighed on high-growth tech stocks.

Steel stocks moved sharply higher over the course of the session, driving the NYSE Arca Steel Index up by 3.2 percent to its best closing level in three months.

Considerable strength was also visible among oil service stocks, as reflected by the 2.5 percent jump by the Philadelphia Oil Service Index. The rally by oil service stocks came amid a rebound by the price of crude oil.

Transportation stocks also turned in a strong performance on the day, resulting in a 1.9 percent advance by the Dow Jones Transportation Average.

Kansas City Southern (KSU) helped lead the sector higher after Canadian Pacific Railway (CP) raised its offer to acquire the railway operator to about $300 per share.

Natural gas, oil producer and housing stocks also saw notable strength, while gold stocks saw significant weakness despite an increase by the price of the precious metal.

Biotechnology and semiconductor stocks also moved to the downside on the day, contributing to the drop by the tech-heavy Nasdaq.

Commodity, Currency Markets

Crude oil futures are falling $0.58 to $67.71 a barrel after jumping $1.81 to $68.29 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,746.70, up $15 compared to the previous session’s close of $1,731.70. On Tuesday, gold rose $5.20.

On the currency front, the U.S. dollar is trading at 110.53 yen compared to the 110.57 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1727 compared to yesterday’s $1.1720.

Asia

Asian stocks ended mixed on Wednesday after the U.S. Senate approved a $1 trillion infrastructure bill.

As Fed officials talk up the prospects of unwinding some stimulus, investors awaited U.S. consumer inflation data later in the day for additional clues on the outlook for monetary policy.

Chinese shares ended on a flat note as COVID-19 cases in the country hit a seven-month high. Hong Kong’s Hang Seng Index edged up 0.2 percent to finish at 26,660.16.

Japanese shares extended gains for the fourth straight session as strong earnings from Bridgestone and other firms outweighed concerns over rapidly rising coronavirus cases in the capital.

The Nikkei 225 Index rose 182.36 points, or 0.7 percent, to 28,070.51, closing above 28,000 for the first time since July 16. The broader Topix gained 0.9 percent to end at 1,954.08.

Bridgestone soared 5.4 percent after the tire maker reported strong quarterly earnings and issued an upbeat annual profit outlook. Similarly, Toho Zinc jumped 12.7 percent after raising its full-year earnings forecasts.

Banks Mitsubishi UFJ Financial and Sumitomo Mitsui Financial rallied around 3 percent as U.S. bond yields rose to one-month highs after the U.S. Senate passed a $1 trillion infrastructure bill.

Heavyweight Softbank Group gave up 1.8 percent after Chief Executive Masayoshi Son said the company would pause Chinese investments.

Australian markets hit a record high as Commonwealth unveiled a record $4.4 billion share buyback after reporting a 20 percent rise in full-year profit.

The benchmark S&P/ASX 200 Index rose 21.70 points, or 0.3 percent, to 7,584.30 while the broader All Ordinaries Index ended up 24.20 points, or 0.3 percent, at 7,854.60.

Commonwealth shares advanced 1.5 percent, while the other three big banks gained between 0.7 percent and 1.2 percent. Insurance Australia Group fell 2.7 percent after reporting net loss after tax of $427 million for the period ending June 30, 2021.

Mining heavyweights BHP and Rio Tinto both rose over 1 percent despite iron ore prices dropping to a three-month low on concerns about weakening Chinese demand.

Iress soared 5.8 percent after the financial services software group received a revised buyout offer from Sweden-based private-equity firm EQT.

In economic news, consumer confidence in Australia remains weak in August, the latest survey from Westpac Bank showed, as its sentiment index dipped 4.4 percent to a score of 104.1 from 108.8 in July.

Seoul stocks ended lower for the fifth straight day as the country posted a record number of coronavirus cases. The daily caseload has remained above 1,000 for over a month despite the implementation of a semi-lockdown in the capital area. The Kospi dropped 22.57 points, or 0.7 percent, to 3,220.62.

Samsung Electronics fell 2.1 percent and SK Hynix gave up 6.2 percent after market researcher TrendForce said that personal computer DRAM prices will likely fall by up to 5 percent sequentially in the final quarter of the year due to PC manufacturers’ high inventory.

Europe

European stocks are mostly higher on Wednesday after U.S. lawmakers agreed on a trillion dollar boost to the economy in the form of a massive infrastructure bill passed by the Senate.

The markets have also reacted positively to relatively tame U.S. inflation data, which has eased concerns about the outlook for monetary policy.

While the German DAX Index is just above the unchanged line, the French CAC 40 Index is up by 0.4 percent and the U.K.’s FTSE 100 Index is up by 0.5 percent.

Dutch bank ABN Amro shares have jumped. The Dutch bank swing to a net profit for the second quarter of 2021 and said it would resume dividend payments.

Avast has also climbed after U.S. cybersecurity company NortonLifeLock Inc. agreed to buy its London-listed rival for up to $8.6 billion to create a leader in consumer security software.

Provident Financial has also surged. The consumer finance company reported that its first-half loss before tax was 44.2 million pounds, compared to a loss of 28.1 million pounds a year ago. The results include losses related to the planned closure of Consumer Credit Division or CCD.

Vivendi shares have also advanced. The French media conglomerate said that it has sold 7.1 percent of Universal Music’s share capital for $2.8 billion.

On the other hand, life insurer Phoenix has moved to the downside after it swung to a pre-tax interim loss.

Vestas Wind Systems has also fallen. The wind turbine company cut its outlook for 2021 after missing second quarter operating profit forecasts.

Food delivery company Deliveroo has also slumped despite the value of orders on its platform more than doubling in the first half.

Thyssenkrupp shares have also moved sharply lower after the German conglomerate cut its full-year free cash flow outlook.

Uniper has also dropped. The utility said its EBIT earnings fell 16.1 percent year-on-year in the first half mainly due to “price-and volume-driven increase in provisions for carbon allowances.”

Leoni has also plunged. After posting a narrower Q2 net loss, the provider of energy and data management solutions for the automotive industry raised its sales and earnings outlook for fiscal 2021.

U.S. Economic Reports

Reflecting higher prices for shelter, food, energy, and new vehicles, the Labor Department released a report on Wednesday showing consumer prices in the U.S. increased in line with economist estimates in the month of July.

The Labor Department said its consumer price index climbed by 0.5 percent in July after jumping by 0.9 percent in June.

Economists had expected consumer prices to rise by 0.5 percent following the advance in the previous month, which reflected the biggest increase since June of 2008.

Excluding food and energy prices, core consumer prices rose by 0.3 percent in July after surging by 0.9 percent in June. Economists had expected core prices to increase by 0.4 percent.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended August 6th.

Crude oil inventories are expected to dip by 1.1 million barrels after climbing by 3.6 million barrels in the previous week.

Atlanta Federal Reserve President Raphael Bostic is also due to give a lecture, “The Federal Reserve’s Role in Making This an Economy That Works for Everyone,” at the Chautauqua Institution at 10:30 am ET.

At 12 pm ET, Kansas City Federal Reserve President Esther George is scheduled to speak before the National Association for Business Economics’ virtual 18th Annual NABE Economic Measurement Seminar.

The Treasury Department is due to announce the results of this month’s auction of $41 billion worth of ten-year notes at 1 pm ET.

Stocks In Focus

Shares of WW International (WW) are moving sharply lower in pre-market trading after the weight loss company reported second quarter results that missed analyst estimates on both the top and bottom lines.

Consumer self-care products provider Perrigo (PRGO) may also come under pressure after reporting weaker than expected second quarter results.

On the other hand, shares of fuboTV (FUBO) are seeing significant pre-market strength after the sports-focused streaming service reported second quarter revenues that beat estimates and raised its full-year guidance.

Cryptocurrency exchange operator Coinbase (COIN) may also move to the upside after reporting better than expected second quarter results.