Hotter Than Expected Inflation Data May Lead To Pullback On Wall Street

The major U.S. index futures are currently pointing to a sharply lower open on Tuesday, with stocks likely to give back ground after showing a strong upward move over the past several sessions.

The futures came under pressure following the release of the Labor Department’s highly anticipated report on consumer price inflation in the month of August.

The report showed an unexpected monthly uptick in consumer prices as well as a smaller than expected slowdown in the annual rate of price growth.

The Labor Department said its consumer price index inched up by 0.1 percent in August after coming in unchanged in July. Economists had expected consumer prices to edge down by 0.1 percent.

The modest increase in consumer prices came as higher prices for shelter, food and medical care offset another steep drop in gasoline prices.

Compared to the same month a year ago, consumer prices were up by 8.3 percent in August, reflecting a slowdown from the 8.5 percent spike in July. However, economists had expected the annual rate of growth to slow to 8.1 percent.

The report also showed core consumer prices, which exclude food and energy prices, climbed by 0.6 percent in August after rising by 0.3 percent in July. Core prices were expected to increase by another 0.3 percent.

Meanwhile, the annual rate of growth by core consumer prices accelerated to 6.3 percent in August from 5.9 percent in July. The annual rate of growth was expected to rise to 6.1 percent.

The data may lead to renewed concerns about the outlook for interest rates ahead of the Federal Reserve’s monetary policy meeting next week.

While the report was not likely to impact expectations regarding a 75 basis point rate increase next week, the faster than expected year-over-year growth may lead to worries about future rate hikes.

Extending the recovery rally seen last week, stocks showed a strong move to the upside during trading on Monday. With the continued advance, the major averages closed higher for the fourth consecutive session.

The major averages finished the day firmly in positive territory. The Dow climbed 229.63 points or 0.7 percent to 32,381.34, the Nasdaq surged 154.10 points or 1.3 percent to 12,266.41 and the S&P 500 jumped 43.05 points or 1.1 percent to 4,110.41.

The rally on Wall Street came as traders continued to pick up stocks at relatively reduced levels after the major averages snapped a three-week losing streak last week, bouncing well off their lowest levels in over a month.

Optimism about a slowdown in inflation also contributed to the strength On Wall Street ahead of the release of a closely watched report on consumer prices.

Buying interest waned somewhat as the day progressed, however, as the data is not likely to impact for a 75 basis point interest rate increase by the Federal Reserve next week.

“Wall Street is locked into Tuesday’s inflation report that will likely show pricing pressure relief but will not change the Fed from maintaining an aggressive stance of tightening monetary policy,” said Edward Moya, senior market analyst at OANDA.

He added, “Even if inflation falls below the 8% level, the Fed should still deliver a 75 basis-point rate hike at the September 21st policy decision.”

Reports on producer prices, import and export prices, retail sales, industrial production and consumer sentiment are also likely to attract attention in the coming days.

Natural gas stocks turned in some of the market’s best performances on the day, driving the NYSE Arca Natural Gas Index up by 2.4 percent.

The rally by natural gas stocks came amid a sharp increase by the price of the commodity, with natural gas for October delivery surging $0.253 to $8.249 per million BTUs.

A significant increase by the price of crude oil also contributed to considerable strength among oil stocks, as reflected by the 1.7 percent gain posted by the NYSE Arca Oil Index.

Gold stocks also moved notably higher along with the price of the precious metal, resulting in a 1.5 percent advance by the NYSE Arca Gold Bugs Index.

Transportation, computer hardware and retail stocks also showed strong moves to the upside, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are inching up $0.16 to $87.94 a barrel after jumping $0.99 to $87.78 a barrel on Monday. Meanwhile, after climbing $12.00 to $1,740.60 an ounce in the previous session, gold futures are slumping $21.20 to $1,719.40 an ounce.

On the currency front, the U.S. dollar is trading at 143.92 yen compared to the 142.84 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.0059 compared to yesterday’s $1.0122.

Asia

Asian stocks rose broadly on Tuesday as focus shifted to U.S. inflation data due later in the day that could show some signs of softening in August.

The Federal Reserve, however, is still expected to deliver another 75 basis point interest rate hike next week after two such moves in June and July.

The dollar steadied ahead of the U.S. CPI data, while oil extended overnight gains amid uncertainty about a revival of the Iranian nuclear deal and growing speculation about the impact of Ukraine’s offensive around Kharkiv on the supply of Russian oil.

Chinese shares finished marginally higher, while Hong Kong’s Hang Seng Index slipped 0.2 percent to 19,326.86 after last week’s strong rebound.

Japanese shares eked out modest gains, led by energy and travel-related stocks. The Nikkei 225 Index rose 0.3 percent to 28,614.63, while the broader Topix closed 0.3 percent higher at 1,986.57.

Inpex Corp., Japan Petroleum, ANA Holdings and H.I.S. gained 1-4 percent. Video game maker Nintendo jumped 5.5 percent after it reported record domestic launch sales for its shooter “Splatoon 3” on the Switch console.

A strengthening yen weighed on the auto sector, with Mitsubishi Motors, Subaru and Mazda losing 2-4 percent.

Seoul stocks posted strong gains as traders returned to their desks following the four-day Chuseok fall harvest holiday.

The Kospi spiked 2.7 percent to 2,449.54, with tech and battery stocks leading the surge amid growing expectations that U.S. inflation may have peaked. Samsung Electronics, SK Hynix and Samsung SDI all rallied around 5 percent.

Australian markets hit over two-week high as banks benefited from expectations of higher interest rates. The benchmark S&P/ASX 200 Index gained 0.7 percent to end at 7,009.70, its highest closing level since August 26 and extending gains for a fourth straight session.

The broader All Ordinaries Index rose 0.6 percent to 7,253.70 after a measure of Australian consumer confidence increased for the first time in 10 months.

Ramsay Health Care shares slumped 10.4 percent after a KKR-led consortium said it was unwilling to improve its US$14.5 billion cash-and-stock offer for the hospital operator.

Europe

European stocks have come under pressure following the release of the U.S. inflation data after moving to the upside earlier in the session.

Closer to home, German consumer price inflation accelerated as initially estimated in August, the latest figures from Destatis showed.

The consumer price index rose 7.9 percent year-on-year in August, faster than the 7.5 percent increase in July. The jump was in line with flash data published on August 30.

Meanwhile, the German ZEW economic sentiment index worsened to -61.9 in September versus the -60.0 expected.

The U.K. unemployment rate hit its lowest level in 48 years in the three months to July, separate data published by the Office for National Statistics showed earlier today.

The unemployment rate fell to 3.6 percent in the three months to July, the lowest since May to July 1974. The rate was seen at 3.8 percent.

While the U.K.’s FTSE 100 Index has dipped by 0.3 percent, the French CAC 40 Index and the German DAX Index are both down by 0.2 percent.

British software maker Aveva Group has rallied nearly amid reports that France’s Schneider is nearing a deal to buy out the company.

Media company Future Plc has also soared after saying that it expects full year adjusted operating profit to be at the top end of market expectations.

UBS has also advanced. The Swiss banking group plans to raise its dividend and expects 2022 share repurchases to exceed $5 billion.

On the other hand, M&C Saatchi, an advertising and marketing firm, has slumped after it once again rejected a takeover offer by AdvancedAdvt Limited, an acquisition vehicle company.

Ocado Group shareshave also plunged almost after Ocado Retail, a joint venture between Ocado Group and Marks & Spencer Group, forecast a dip in full-year sales. Marks & Spencer shares have also fallen.

U.S. Economic Reports

A highly anticipated report released by the Labor Department on Tuesday showed an unexpected uptick in U.S. consumer prices in the month of August.

The Labor Department said its consumer price index inched up by 0.1 percent in August after coming in unchanged in July. Economists had expected consumer prices to edge down by 0.1 percent.

The modest increase in consumer prices came as higher prices for shelter, food and medical care offset another steep drop in gasoline prices.

The report showed core consumer prices, which exclude food and energy prices, climbed by 0.6 percent in August after rising by 0.3 percent in July. Core prices were expected to increase by another 0.3 percent.

Compared to the same month a year ago, consumer prices were up by 8.3 percent in August, reflecting a slowdown from the 8.5 percent spike in July. Economists had expected the annual rate of growth to slow to 8.1 percent.

Meanwhile, the annual rate of growth by core consumer prices accelerated to 6.3 percent in August from 5.9 percent in July. The annual rate of growth was expected to rise to 6.1 percent.

At 1 pm ET, the Treasury Department is scheduled to announce the results of this month’s auction of $18 billion worth of thirty-year bonds.

Stocks In Focus

Shares of Oracle (ORCL) may see initial strength after the business software giant reported fiscal first quarter earnings that missed analyst estimates but better than expected revenues.

Communications software company Twilio (TWLO) may also move to the upside after KeyBanc Capital Markets resumed coverage of the company’s stock with an Overweight rating.

Meanwhile, shares of Rent the Runway (RENT) are moving sharply lower in pre-market trading after the fashion rental company reported an unexpected decrease in active subscribers in the second quarter and revealed plans to layoff approximately 24 percent of its corporate employees.