U.S. Stocks Likely To See Continued Weakness After Inflation Data

Stocks are likely to come under pressure in early trading on Wednesday, extending the notable downward move seen over the two previous sessions. The major index futures are currently pointing to a sharply lower open for the markets, with the S&P 500 futures down by 1.4 percent.

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.

Later in the day, the central bank is scheduled to release its Beige Book, a compilation of anecdotal evidence on economic conditions in each of the twelve Fed districts.

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.

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan’s Nikkei 225 Index rose by 0.5 percent, while China’s Shanghai Composite Index inched up by 0.1 percent.

Meanwhile, the major European markets have moved to the downside on the day. 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.

In commodities trading, crude oil futures are slipping $0.34 to $95.50 a barrel after plummeting $8.25 to $95.84 a barrel on Thursday. 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 Thursday. Against the euro, the dollar is valued at $1.0004 compared to yesterday’s $1.0037.