Inflation Data Likely To Lead To Extended Sell-Off On Wall Street

The major U.S. index futures are currently pointing to a sharply lower open on Friday, with stocks likely to extend the sell-off seen in the previous session.

Concerns about the outlook for interest rates are likely to continue to weigh on the markets after the Labor Department released a report showing consumer prices in the U.S. shot up by more than expected in the month of May.

Excluding food and energy prices, core consumer prices climbed by 0.6 percent in May, matching the growth seen in the previous month. Core prices were expected to rise by 0.5 percent.

The report also showed the annual rate of consumer price growth accelerated to 8.6 percent in May from 8.3 percent in April, showing the biggest surge since December 1981. The annual growth was expected to be unchanged.

Meanwhile, the annual rate of core consumer price growth slowed to 6.0 percent in May from 6.2 percent in April. Economists had expected the pace of growth to decelerate to 5.9 percent.

The bigger than expected increase in consumer prices is likely to convince the Federal Reserve to follow through on its plans to aggressively raise interest rates in an effort to combat inflation.

The Fed is scheduled to announce its latest monetary policy decision next Wednesday, with the central bank widely expected to raise interest rates by another 50 basis points.

After initially showing a lack of direction, stocks moved sharply lower over the course of the trading session on Thursday. With the steep drop on the day, the major averages extended the downward move seen during Wednesday’s session.

The major averages saw further downside going into the close, ending the session at their worst levels of the day. The Dow tumbled 638.11 points or 1.9 percent to 32,272.79, the Nasdaq plunged 332.05 points or 2.8 percent to 11,754.23 and the S&P 500 dove 97.95 points or 2.4 percent to 4,017.82.

The sell-off on Wall Street came as traders looked ahead to the release of the Labor Department’s report on consumer price inflation.

On the economic front, a report released by the Labor Department showed first-time claims for U.S. unemployment benefits rose by more than expected in the week ended June 4th.

The Labor Department said initial jobless claims climbed to 229,000, an increase of 27,000 from the previous week’s revised level of 202,000.

Economists had expected jobless claims to rise to 210,000 from the 200,000 originally reported for the previous week.

Steel stocks showed a substantial move to the downside on the day, dragging the NYSE Arca Steel Index down by 4.5 percent.

Significant weakness was also visible among airline stocks, as reflected by the 3.8 percent nosedive by the NYSE Arca Airline Index.

Gold stocks also considerable weakness amid a modest decrease by the price of the precious metal, with the NYSE Arca Gold Bugs Index tumbling by 3.7 percent.

Oil service, biotechnology and banking stocks also showed notable moves to the downside amid broad based selling pressure on Wall Street.

Commodity, Currency Markets

Crude oil futures are climbing $0.79 to $122.30 a barrel after falling $0.60 to $121.51 a barrel on Thursday. Meanwhile, after slipping $3.70 to $1,852.80 an ounce in the previous session, gold futures are sliding $16.60 to $1,836.20 an ounce.

On the currency front, the U.S. dollar is trading at 133.81 yen versus the 134.36 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0550 compared to yesterday’s $1.0617.

Asia

Asian stocks followed their U.S. peers lower on Friday amid concerns about slowing global growth and rising interest rates. Mass testing announcements in Shanghai also sparked fears of a return to stringent, prolonged lockdowns.

The dollar edged lower and yields struggled as traders braced for key U.S. consumer inflation data due out later in the day that will guide the Federal Reserve’s policy tightening path. Economists see an annual inflation rate for May of 8.3 percent, unchanged from April.

Chinese shares rose sharply as hopes of regulatory easing on tech firms and signs of moderating inflation offset news that China will reimpose Covid-19 lockdowns in eight out of 16 of Shanghai’s districts. Parts of Beijing have also reimposed some restrictions.

The benchmark Shanghai Composite Index jumped 1.4 percent to 3,284.83 after data showed inflation moderated in May, leaving room for authorities to ease monetary policy and release more stimulus to boost growth.

China’s factory-gate inflation rose an annual 6.4 percent last month, marking the weakest pace since March 2021, National Bureau of Statistics data showed. Consumer inflation added 2.1 percent, unchanged from April.

Hong Kong’s Hang Seng Index slipped 0.3 percent to 21,806.18 after an extremely choppy session.

Japanese shares tumbled after a hawkish ECB pushed global bond yields higher. The ECB said it would end its massive bond-buying stimulus by the end of June and begin hiking interest rates on July 21 for the first time in 11 years, followed by another hike in September.

The central bank also downgraded its growth forecasts and revised up its inflation projections.

The Nikkei 225 Index slumped 1.5 percent to 27,824.29, snapping a five-day winning streak. The broader Topix closed 1.3 percent lower at 1,943.09. Tech stocks such as SoftBank Group, Tokyo Electron and Advantest lost 2-4 percent.

Producer prices in Japan were up 9.1 percent year-on-year year in May, the Bank of Japan said earlier today. That was shy of expectations for an increase of 9.8 percent.

Seoul stocks fell, with the Kospi average closing 1.1 percent lower at 2,595.87.

Australian markets ended lower as renewed COVID-19 measures in Beijing added to worries surrounding slowing global growth.

The benchmark S&P/ASX 200 Index dropped 1.3 percent to 6,932 and closed the week down 4.2 percent, marking its biggest weekly decrease in 2 years. The broader All Ordinaries Index closed 1.3 percent lower at 7,145.20.

Weak bullion prices pulled down gold miners, with Newcrest and Northern Star Resources losing 1-2 percent. Regis Resources tumbled 3.7 percent.

Europe

European stocks are under pressure on Friday after the ECB delivered its hawkish guidance and parts of China’s largest economic hub imposed new lockdowns.

While the U.K.’s FTSE 100 Index is down by 1.6 percent, the German DAX Index is down by 1.7 percent and the French CAC 40 Index is down by 1.8 percent.

Credit Suisse has slumped to extend losses after State Street Corp. said it is not pursuing any acquisition or business combination with the Swiss lender.

Airlines Ryanair, International Consolidated Airlines, Lufthansa and Wizz Air have also fallen as a labor strike in Europe drove expectations of more travel headaches during the busy summer season.

Meanwhile, Just Eat Takeaway has soared on reports that its U.S. unit Grubhub is attracting preliminary interest from private equity firms including Apollo Global Management.

Drug maker GSK ehas dged up slightly after its vaccine for respiratory syncytial virus (RSV) succeeded in an ongoing late-stage trial involving older adults.

U.S. Economic Reports

Consumer prices in the U.S. shot up by more than expected in the month of May, according to a highly anticipated report released by the Labor Department on Friday.

The Labor Department said its consumer price index jumped by 1.0 percent in May after rising by 0.3 percent in April. Economists had expected consumer prices to increase by 0.7 percent.

Excluding food and energy prices, core consumer prices climbed by 0.6 percent in May, matching the growth seen in the previous month. Core prices were expected to rise by 0.5 percent.

The report also showed the annual rate of consumer price growth accelerated to 8.6 percent in May from 8.3 percent in April, showing the biggest surge since December 1981. The annual growth was expected to be unchanged.

Meanwhile, the annual rate of core consumer price growth slowed to 6.0 percent in May from 6.2 percent in April. Economists had expected the pace of growth to decelerate to 5.9 percent.

At 10 am ET, the University of Michigan is scheduled to release its preliminary reading on consumer sentiment in the month of June. The consumer sentiment index is expected to edge down to 58.0 in June from 58.4 in May.

Stocks In Focus

Shares of DocuSign (DOCU) are plunging in pre-market trading after the electronic signature technology company reported weaker than expected fiscal first quarter results.

Online clothing styler Stitch Fix (SFIX) may also come under pressure after reporting a wider than expected fiscal third quarter loss. The company also announced plans to cut about 330 jobs.

On the other hand, shares of Rent The Runway (RENT) are likely to see initial strength after the fashion rental company reported a narrower than expected fiscal first quarter loss on revenues that exceeded estimates. The company also provided upbeat revenue guidance for the current quarter.

Resort operator Vail Resorts (MTN) may also move to the upside after reporting fiscal third quarter results that exceeded analyst stimates.