Hotter-Than-Expected Inflation Data Likely To Weigh On Wall Street

The major U.S. index futures are currently pointing to a sharply lower open on Friday, with stocks likely to move back to the downside after ending yesterday’s wild ride mostly higher.

The futures came under pressure following the release of a report from the Commerce Department showing an unexpected acceleration in the annual rate of growth by core consumer prices, which exclude food and energy prices.

The Commerce Department’s reading on core consumer prices, which is said to be preferred by the Federal Reserve, showed the annual rate of growth accelerated to 4.7 percent in January from an upwardly revised 4.6 percent in December.

Economists had expected the annual rate of growth by core consumer prices to slow to 4.3 percent from the 4.4 percent originally reported for the previous month.

The unexpected acceleration in core consumer price growth is likely to add to recent concerns about the outlook for interest rates.

The data may convince the Fed that it needs to raise rates higher than currently anticipated in order to win the battle against elevated inflation.

Stocks went on a roller coaster ride during trading on Thursday, with the major averages swinging back and forth across the unchanged line after ending Wednesday’s trading narrowly mixed.

After seeing initial strength, the major averages turned lower over the course of morning trading before recovering in the afternoon.

The major averages all eventually ended the day in positive territory. The Dow rose 108.82 points or 0.3 percent to 33,153.91, the Nasdaq advanced 83.33 points or 0.7 percent to 11,590.40 and the S&P 500 climbed 21.27 points or 0.5 percent to 4,012.32.

The higher close on Wall Street may have reflected bargain hunting, with the Dow and the S&P 500 rebounding after ending the previous session at their lowest closing levels in a month.

Semiconductor stocks contributed to the advance, driving the Philadelphia Semiconductor Index up by 3.3 percent.

Nvidia (NVDA) posted a standout gain after the chipmaker reported better than expected fourth quarter results and provided upbeat revenue guidance for the current quarter.

Considerable strength was also visible among oil service stocks, which rebounded along with the price of crude oil. Reflecting the strength in the sector, the Philadelphia Oil Service Index shot up by 2.2 percent.

Natural gas, computer hardware and networking stocks also saw notable strength on the day, while telecom stocks saw significant weakness.

Buying interest remained somewhat subdued, as interest rate concerns continued to hang over the markets following Wednesday’s release of the minutes of the latest Federal Reserve meeting.

The Fed minutes offered few surprised but reiterated that the central bank will continue to raise interest rates in its battle against inflation.

With the Fed warning about the impact of labor market tightness, negative sentiment may also have been generated in reaction to a Labor Department report showing an unexpected dip in first-time claims for U.S. unemployment benefits in the week ended February 18th.

The report said initial jobless claims edged down to 192,000, a decrease of 3,000 from the previous week’s revised level of 195,000.

The dip surprised economists, who had expected jobless claims to inch up to 200,000 from the 194,000 originally reported for the previous week.

Meanwhile, revised data released by the Commerce Department showed the U.S. economy grew by slightly less than previously estimated in the fourth quarter of 2022.

Commodity, Currency Markets

Crude oil futures are inching up $0.23 to $75.62 a barrel after jumping $1.44 to $75.39 a barrel on Thursday. Meanwhile, after falling $14.70 to $1,826.80 an ounce in the previous session, gold futures are slipping $3.90 to $1,822.90 an ounce.

On the currency front, the U.S. dollar is trading at 135.85 yen versus the 134.70 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 $1.0596.

Asia

Asian stocks ended mixed on Friday despite Wall Street snapping a four-day losing streak overnight on the back of better-than-expected fourth quarter profits announced by chipmaker Nvidia.

Investors awaited the release of the U.S. personal consumption expenditures index, which is a key price gauge for the Fed, later in the day to assess the prospect for further interest rate hikes from the U.S. central bank.

Gold edged up on dollar weakness, while oil prices rose for a second straight session on signs of improving crude demand.

Chinese shares fell notably as Beijing reiterated its calls for a political settlement to the Ukraine conflict. The benchmark Shanghai Composite Index dropped 0.6 percent to 3,267.16, while Hong Kog’s Hang Seng Index tumbled 1.7 percent to 20,010.04.

Japanese shares rose the most in a month after Bank of Japan governor nominee Kazuo Ueda told lawmakers he favors keeping conditions accommodative to support economic growth.

Investors shrugged off data released earlier in the day showing that Japan’s core inflation rate hit a four-decade high of 4.2 percent in January.

The Nikkei 225 Index jumped 1.3 percent to 27,453.48 as trading resumed after a national holiday on Thursday. The broader Topix closed 0.7 percent higher at 1,988.40.

Chip-related stocks surged the most, with Advantest, Tokyo Electron and Screen Holdings spiking 5-8 percent.

Seoul stocks ended lower as U.S. rate hike uncertainty weighed on the tech sector. The Kospi shed 0.6 percent to finish at 2,423.61. Samsung Electronics gave up 1.1 percent, SK Hynix lost 1.8 percent and Naver shed 2.6 percent.

Australian markets snapped a three-day losing streak, with financials, tech and energy stocks leading the rebound. The benchmark S&P/ASX 200 Index rose 0.3 percent to 7,307 but recorded its third consecutive weekly loss. The broader All Ordinaries Index ended 0.3 percent higher at 7,512.70.

Logistics firm Brambles soared 7.5 percent after raising its annual earnings outlook. Lithium miner Allkem rallied 3.7 percent after reporting a near eleven-fold jump in first-half profit.

Europe

European stocks are turning in a mixed performance on Friday, as recent strong U.S. data has raised hopes a recession can be avoided but uncertainty over the future trajectory of the Federal Reserve’s rate hikes continues to hang over the markets.

While the U.K.’s FTSE 100 Index is up by 0.2 percent, the French CAC 40 Index is down by 0.4 percent and the German DAX Index is down by 0.6 percent.

British Airways-owner IAG has moved sharply lower after it announced a deal for the remaining shares in Air Europa it did not already own.

German chemical maker BASF has also slumped after it slipped to a loss in the fourth quarter of 2022 and announced plans to sack 2,600 employees, around 2 percent of its workforce.

On the other hand, Jupiter Fund Management has soared after recording positive net inflows in the last six months of 2022.

Saint-Gobain has also jumped in Paris. After posting record annual revenue, the building materials firm said it would allocate at least 400 million euros for share buybacks in 2023 in line with the objectives set out in its “Grow & Impact” plan.

In economic news, data showed German consumer sentiment is set to strengthen for the fifth month in a row in March amid lower energy prices.

The forward-looking Consumer Confidence Index for March rose to -30.5 points from a revised -33.8 points in February, the Nuremberg based GfK said. Economists had forecast a reading of -30.4.

Separate data released by the statistical office Destatis revealed that the German economy shrank more than initially estimated in the fourth quarter of 2022.

Gross domestic product decreased 0.4 percent quarter-on-quarter, which was a more severe fall than the 0.2 percent estimated initially.

French consumer confidence dropped slightly in February, reflecting moderate weakness in households’ assessment about the financial situation, survey results from the statistical office INSEE showed.

The consumer confidence index fell to 82 in February from a revised 83 in January. The score was forecast to fall to 80.

In the U.K., a survey showed British consumer confidence rebounded in February to its highest level in almost a year.

Research group GfK said its index of consumer confidence, a closely watched measure of how people view their personal finances and the economic outlook, rose by seven points to -38. This is the highest reading since April 2022.

U.S. Economic Reports

A report released by the Commerce Department showed U.S. personal income increased by less than expected in the month of January.

The Commerce Department said personal income climbed by 0.6 percent in January after rising by an upwardly revised 0.3 percent in December.

Economists had expected personal income to advance by 0.9 percent compared to the 0.2 percent uptick originally reported for the previous month.

Meanwhile, the report said personal spending surged by 1.8 percent in January after edging down by a revised 0.1 percent in December.

Personal spending was expected to jump by 1.3 percent compared to the 0.2 percent dip originally reported for the previous month.

The report also showed an unexpected acceleration in the annual rate of growth by core consumer prices, which exclude food and energy prices.

The Commerce Department’s reading on core consumer prices, which is said to be preferred by the Federal Reserve, showed the annual rate of growth accelerated to 4.7 percent in January from an upwardly revised 4.6 percent in December.

Economists had expected the annual rate of growth by core consumer prices to slow to 4.3 percent from the 4.4 percent originally reported for the previous month.

At 10 am ET, the Commerce Department is scheduled to release its report on new home sales in the month of January. Economists expect new home sales to rise to an annual rate of 620,000 in January from 616,000 in December.

The University of Michigan is also due to release its revised reading on consumer sentiment in the month of February at 10 am ET. The consumer sentiment index is expected to be unrevised at 66.4.

At 10:15 am ET, Cleveland Federal Reserve President Loretta Mester is scheduled to speak before the Chicago Booth Initiative on Global Markets 2023 U.S. Monetary Policy Forum.

Boston Federal Reserve President Susan Collins and Federal Reserve Board Governor Christopher Waller are due to participate in a Why Did We Miscast Inflation? panel before the Chicago Booth Initiative on Global Markets 2023 U.S. Monetary Policy Forum at 1:30 pm ET.

Stocks In Focus

Shares of Carvana (CVNA) are moving sharply lower in pre-market trading after reporting a wider than expected fourth quarter loss on revenues that missed analyst estimates.

Media and entertainment conglomerate Warner Bros. Discovery (WBD) may also come under pressure after reporting weaker than expected fourth quarter results.

Meanwhile, shares of Beyond Meat (BYND) are seeing significant pre-market strength after the meat alternative company reported a narrower than expected fourth quarter loss on revenues that beat expectations.