Inflation Data Likely To Lead To Continued Weakness On Wall Street

The major U.S. index futures are currently pointing to a sharply lower open on Wednesday, with stocks likely to extend the notable downward move seen over the two previous sessions.

The futures showed a significant move to the downside following the release of a highly anticipated Labor Department report showing U.S. consumer prices surged by more than expected in the month of June.

The report showed the consumer price index shot up by 1.3 percent in June after jumping by 1.0 percent in May. Economists had expected consumer prices to leap by 1.1 percent.

With the bigger than expected monthly surge, the annual rate of consumer price growth accelerated to 9.1 percent in June, reflecting the biggest increase since November 1981.

Economists had expected the annual rate of consumer price growth to accelerate to 8.8 percent in June from 8.6 percent in May.

Excluding increases in prices for food and energy, core consumer prices advanced by 0.7 percent in June after climbing by 0.6 percent in May. Core prices were expected to rise by another 0.6 percent.

While the annual rate of core consumer price growth slowed to 5.9 percent in June from 6.0 percent in May, the rate of growth was expected to decelerate to 5.7 percent.

The bigger than expected increase in consumer prices is likely to solidify expectations of aggressive monetary policy tightening by the Federal Reserve.

The Fed is due to announce its next interest rate decision later this month, with CME Group’s FedWatch Tool currently indicating a 65.6 percent chance of a 75 basis point rate hike and a 34.4 percent chance of a 100 basis point rate hike.

Traders continue to express concerns the Fed’s aggressive fight to contain elevated inflation will inadvertently push the economy into a recession.

Stocks showed a lack of direction for much of the session on Tuesday before coming under considerable pressure in late-day trading. With the downward move on the day, the major averages added to the notable losses posted on Monday.

The major averages climbed off their worst levels going into the close but remained firmly negative. The Dow fell 192.51 points or 0.6 percent to 30,981.33, the Nasdaq slumped 107.87 points or 1 percent to 11,264.73 and the S&P 500 slid 35.63 points or 0.9 percent to 3,818.80.

The late-day weakness on Wall Street came as traders looked ahead to the Labor Department’s report on consumer price inflation in the month of June.

Concerns about the emergence of a new, more infectious Covid-19 strain in several parts of the world also continued to weigh on investors’ minds.

Many cities in China are already taking steps to stop the spread of the new strain, leading to worries about another round of painful lockdowns, especially in Shanghai or Beijing.

A Covid-19 resurgence and the resumption of Chinese lockdowns could put further pressure on a global economy that is already being squeezed by aggressive monetary policy tightening by the world’s central banks.

Investors also seemed to be moving money out of stocks ahead of what some expect to be a difficult quarterly earnings season.

However, snack and beverage giant PepsiCo (PEP) got the earnings season off to a positive start, reporting better than expected second quarter results and raised its full-year guidance.

Financial giants JPMorgan Chase (JPM), Morgan Stanley (MS), Citigroup (C) and Wells Fargo (WFC) are among the companies due to report their quarterly results in the coming days.

Energy stocks saw substantial weakness on the day, moving sharply lower along with the price of crude oil. Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plunged by 3.9 percent and the NYSE Arca Oil Index tumbled by 2.4 percent.

Significant weakness was also visible among gold stocks, as reflected by the 2.4 percent slump by the NYSE Arca Gold Bugs Index. The index dove to its worst closing level in over two years amid a decrease by the price of the precious metal.

Healthcare and retail stocks also saw notable weakness on the day, while the oil-sensitive airline sector bucked the downtrend, with the NYSE Arca Airline Index soaring by 4.2 percent.

Commodity, Currency Markets

Crude oil futures are slipping $0.34 to $95.50 a barrel after plummeting $8.25 to $95.84 a barrel on Tuesday. Meanwhile, after falling $6.90 to $1,724.80 an ounce in the previous session, gold futures are edging down $2.10 to $1,722.70 an ounce.

On the currency front, the U.S. dollar is trading at 137.65 yen versus the 136.87 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.0004 compared to yesterday’s $1.0037.

Asia

Asian stocks inched higher in cautious trading on Wednesday as investors awaited the release of a highly anticipated U.S. inflation report later in the day.

The dollar was firm against its peers, while oil steadied after sliding below $100 a barrel on Tuesday amid escalating fears about an economic slowdown.

Chinese shares finished marginally higher despite renewed COVID-19 travel curbs in the country. The Shanghai Composite Index inched up 0.1 percent to 3,284.29. Hong Kong’s Hang Seng index fluctuated before ending 0.2 percent lower at 20,797.95.

China’s exports grew at their fastest pace in five months in June, while imports rose at a slower pace, customs data showed today.

Japan’s Nikkei 225 Index rose 0.5 percent to 26,478.77 after having fallen nearly 2 percent in the previous session. The broader Topix ended 0.3 percent higher at 1,888.85, with chipmakers and airline stocks pacing the gainers.

Heavyweight SoftBank Group rallied 2.4 percent after reports that the startup investor was in talks with Abu Dhabi’s sovereign wealth fund for the sale of Fortress Investment Group.

Australian markets eked out modest gains as financials advanced, offsetting losses in the energy sector. The benchmark S&P/ASX 200 Index edged up 0.2 percent to 6,621.60, while the broader All Ordinaries Index closed 0.3 percent higher at 6,807.80.

South Korea’s Kospi gained 0.5 percent to finish at 2,328.61 after the Bank of Korea raised its key rate by 50 basis points, the biggest increase since the bank adopted its current policy system in 1999, to curb inflation.

New Zealand shares closed on a flat note after the country’s central bank lifted its benchmark interest rate by the same amount to 2.5 percent.

Taiwan’s Weighted Index closed 2.7 percent higher after Taiwan’s finance ministry said it would activate its stock stabilization fund.

Europe

European stocks are moving lower on Wednesday, with banks and miners leading losses on fears that central bank moves to fight inflation could spark a recession.

Data showed earlier in the day that Eurozone industrial production rose 0.8 percent sequentially in May, well above expectation for a 0.2 percent increase.

The British pound appreciated against its major rivals after data showed that the U.K. economy expanded faster than expected in May.

U.K. GDP rose 0.5 percent on month in May after a revised decline of 0.2 percent in April. Economists had expected a 0.1 percent uptick.

While the French CAC 40 Index has tumbled by 1.9 percent, the German DAX Index is down by 0.8 percent and the U.K.’s FTSE 100 Index is down by 0.6 percent.

Italian insurance company Assicurazioni Generali has fallen. The company said it has achieved the threshold of 95 percent share capital of Società Cattolica di Assicurazione S.p.A., to allow Generali to purchase the remaining shares.

Credit Suisse has also moved lower after the Swiss lender postponed the initial public offering of its real-estate fund 1a Immo PK due to market conditions.

J D Wetherspoon shares have also slumped in London after the pub chain warned it will plunge to an annual loss for the third year running.

Miner and trader Glencore has also declined after completing the sale of a royalty package to Sandstorm Gold Ltd.

Oil & gas exploration firm Tullow Oil has also fallen despite backing its full-year production outlook.

On the other hand, Finnish drug maker Orion has surged after raising its full-year outlook.

SAS has also soared on reports that the embattled Scandinavian airline and unions representing pilots on strike will resume talks today in a bid to end the dispute that started on July 4.

Concurrent Technologies has also jumped after the manufacturer of high-end embedded computer boards for critical applications said it has entered into a supply agreement with a Fortune 500 global medical technology company.

Gerresheimer AG, a maker of medical packaging products, has also spiked after confirming its full-year guidance.

U.S. Economic Reports

The Labor Department released a highly anticipated report on Wednesday showing U.S. consumer prices surged by more than expected in the month of June.

The report showed the consumer price index shot up by 1.3 percent in June after jumping by 1.0 percent in May. Economists had expected consumer prices to leap by 1.1 percent.

Excluding increases in prices for food and energy, core consumer prices advanced by 0.7 percent in June after climbing by 0.6 percent in May. Core prices were expected to rise by another 0.6 percent.

With the bigger than expected monthly surge, the annual rate of consumer price growth accelerated to 9.1 percent in June, reflecting the biggest increase since November 1981.

Economists had expected the annual rate of consumer price growth to accelerate to 8.8 percent in June from 8.6 percent in May.

While the annual rate of core consumer price growth slowed to 5.9 percent in June from 6.0 percent in May, the rate of growth was expected to decelerate to 5.7 percent.

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended July 8th. Crude oil inventories are expected to edge down by 0.2 million barrels after climbing by 8.2 million barrels in the previous week.

The Treasury Department is scheduled to announce the results of this month’s auction of $19 billion worth of thirty-year bonds at 1 pm ET.

At 2 pm ET, the Federal Reserve is scheduled to release its Beige Book, a compilation of anecdotal evidence on economic conditions in each of the twelve Fed districts.

Stocks In Focus

Shares of ironSource (IS) are skyrocketing in pre-market trading after the Israel-based software publisher agreed to be acquired by Unity Software (U) in an all-stock transaction valuing ironSource at approximately $4.4 billion.

Online styling service Stitch Fix (SFIX) is also likely to see initial strength on news Benchmark Capital’s Bill Gurley has bought 1 million shares of the company’s stock.

On the other hand, shares of Delta Airlines (DAL) are seeing pre-market weakness after the airline reported weaker than expected second quarter earnings despite reporting revenues that exceeded analyst estimates.