Inflation Concerns May Lead To Initial Weakness On Wall Street

The major U.S. index futures are currently pointing to a lower open on Wednesday, with stocks likely to move to the downside following the mixed performance seen in the previous session.

Inflation concerns may weigh on Wall Street following yesterday’s report showing consumer price inflation slowed by less than expected in January.

The inflation data has led to worries the Federal Reserve may raise interest rates higher than currently anticipated in an effort to combat elevated inflation.

Potentially giving the Fed confidence that it can continue raising rates without significantly damaging the economy, the Commerce Department released a report this morning showing a substantial increase in U.S. retail sales in the month of January.

The report said retail sales spiked by 3.0 percent in January after tumbling by 1.1 percent in December. Economists had expected retail sales to jump by 1.8 percent.

Excluding a surge in sales by motor vehicle and parts dealers, retail sales still shot up by 2.3 percent in January after falling by a revised 0.9 percent in December.

Ex-auto sales were expected to increase by 0.8 percent compared to the 1.1 percent slump originally reported for the previous month.

A separate report released by the Federal Reserve Bank of New York showed a significant slowdown in the pace of contraction in regional manufacturing activity in the month of February.

After seeing considerable strength in Monday’s session, stocks went on a volatile ride on Tuesday that saw the major averages finish on opposite sides of the unchanged line.

While the tech-heavy Nasdaq climbed 68.36 points or 0.6 percent to 11,960.15, the Dow fell 156.66 points or 0.5 percent to 34,089.27 and the S&P 500 edged down 1.16 points or less than a tenth of a percent to 4,136.13.

The volatility on Wall Street followed the release of closely watched U.S. inflation data, which could have a significant effect on the Federal Reserve’s strategy regarding interest rate hikes.

The Labor Department’s report showed that U.S. consumer prices increased in line with estimates in January, probably dashing hopes that the Federal Reserve might further ease the pace of its interest rate hikes.

The report said the consumer price index climbed by 0.5 percent in January following a revised 0.1 percent uptick in December. Economists had expected consumer prices to rise by 0.5 percent after the 0.1 percent dip in the previous month.

Excluding food and energy prices, core consumer prices rose by 0.4 percent in January, matching a revised increase in December as well as economist estimates.

The Labor Department also said the annual rate of growth in consumer prices slowed slightly less than expected.

Commodity, Currency Markets

Crude oil futures are sliding $0.85 to $78.21 a barrel after slumping $1.08 to $79.06 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,842.90, down $22.50 compared to the previous session’s close of $1,865.40. On Tuesday, gold inched up $1.90.

On the currency front, the U.S. dollar is trading at 133.78 yen compared to the 133.16 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0695 compared to yesterday’s $1.0738.

Asia

Asian markets lost further on Wednesday as markets weighed the risk of sticky inflation on central banks’ monetary policy and the likelihood of a recession following the release of the latest CPI numbers from the U.S.

Data from the U.S. on Tuesday had shown that inflation cooled in January but less than what markets had expected.

China’s Shanghai Composite Index dropped 0.4 percent to 3,280.49. The day’s trading ranged between 3,274.55 and 3,296.20. The Shenzhen Component Index lost 31 points or 0.3 percent to close at 12,064.38.

The Japanese benchmark Nikkei 225 Index shed 100.91 points or 0.4 percent to end trading at 27,501.86. The day’s trading range was between 27,444.13 and 27,720.27.

Sentiment remained tethered to fears of further rate hikes by the Fed as well as the prospects of a likely shift in Bank of Japan’s monetary policy stance under the new Governor.

Citizen Holdings surged 9.2 percent and was the top gainer. Rakuten Inc. rallied more than 7 percent. Sumitomo Osaka Cement gained more than 6 percent. Mitsubishi Chemical Holdings Corp. and Taiheiyo Cement Corp. both rallied more than 4 percent.

Recruit Holdings declined more than 4 percent. Resonac Holdings shed 3.4 percent. Taiyo Yuden Co. Shiseido Co. and NTT Data Corp. all lost more than 2 percent.

The Hang Seng Index of the Hong Kong Stock Exchange shed 301.59 points or 1.4 percent from the previous close to finish trading at 20,812.17. The day’s trading range was between a high of 21,117.58 and a low of 20,726.83.

The Korean Stock Exchange’s Kospi Index lost 37.74 points or 1.5 percent to close trading at 2,427.90. The day’s trading range was between 2,424.16 and 2,473.44.

Australia’s S&P/ASX200 Index closed trading at 7,352.20 after shedding 78.70 points or 1.1 percent amidst anxiety about inflation in the U.S. and a weak outlook by the Commonwealth Bank of Australia. The day’s trading was between 7,337.00 and 7,440.40.

The Star Entertainment Group was the biggest gainer with a surge of more than 14 percent. G.U.D. Holdings added 8.1 percent. Cochlear gained 7 percent after upbeat results as well as a buyback announcement. Magellan Financial Group also gained more than 7 percent. Energy business New Hope Corporation also rallied 5.9 percent.

Semiconductor business Brainchip Holdings was the greatest laggard with a 13.6 percent nosedive. Corporate Travel Management declined 8.7 percent after publication of half yearly results. Premium wine maker Treasury Wine Estates lost more than 6 percent despite a big jump in profits.

Sayona Mining also lost more than 6 percent. Commonwealth Bank of Australia declined 5.7 percent following its results announcement.

Europe

Following the mixed performance seen in the previous session, European stocks have moved mostly higher during trading on Wednesday.

While the French CAC 40 Index is up by 1.0 percent, the German DAX Index is up by 0.5 percent and the U.K.’s FTSE 100 Index is up by 0.1 percent.

Data released earlier in the day showed annual inflation in the U.K. falling to 10.1 percent in January versus 10.5 percent in December and expectations of 10.3 percent.

Core inflation, which was expected to fall to 6.2 percent, dropped more than expected to 5.8 percent, from 6.3 percent in December.

In Germany, MTU Aero Engines gained more than 4 percent. Brenntag added 2.3 percent. Covestro, Airbus, adidas, BMW, Mercedes Benz Group, Deutsche Telekom and BASF have all gained more than 1 percent.

RWE and Fresenius Medical Care, both have declined more than 1 percent.

In France, Grocery stores Carrefour surged more than 8 percent. Luxury goods maker Kering surged 4.3 percent. Legrand, Teleperformance and Hermes International, all added more than 2 percent.

U.S. Economic Reports

Retail sales in the U.S. saw a substantial increase in the month of January, according to a report released by the Commerce Department on Wednesday.

The report said retail sales spiked by 3.0 percent in January after tumbling by 1.1 percent in December. Economists had expected retail sales to jump by 1.8 percent.

Excluding a surge in sales by motor vehicle and parts dealers, retail sales still shot up by 2.3 percent in January after falling by a revised 0.9 percent in December.

Ex-auto sales were expected to increase by 0.8 percent compared to the 1.1 percent slump originally reported for the previous month.

A separate report released by the Federal Reserve Bank of New York on Wednesday showed a significant slowdown in the pace of contraction in regional manufacturing activity in the month of February.

The New York Fed said its general business conditions index soared to a negative 5.8 in February from a negative 32.9 in January, although a negative reading still indicates a contraction. Economists had expected the index to jump to a negative 18.0.

Looking ahead, the New York Fed said firms expect business conditions to improve somewhat over the next six months.

At 9:15 am ET, the Federal Reserve is scheduled to release its report on industrial production in the month of January. Industrial production is expected to increase by 0.5 percent in January after falling by 0.7 percent in December.

The Commerce Department is due to release its report on business inventories in the month of December at 10 am ET. Economists expect business inventories to rise by 0.4 percent.

Also at 10 am ET, the National Association of Home Builders is scheduled to release its report on homebuilder confidence in the month of February. The housing market index is expected to inch up to 37 in February from 35 in January.

The Energy Information Administration is due to release its report on oil inventories in the week ended February 10th at 10:30 am ET. Crude oil inventories are expected to increase by 1.2 million barrels after jumping by 2.4 million barrels in the previous week.

At 1 pm ET, the Treasury Department is scheduled to announce the results of this month’s auction of $15 billion worth of twenty-year bonds.