Tame Inflation Data May Lead To Initial Strength On Wall Street

The major U.S. index futures are currently pointing to a higher open on Tuesday, with stocks likely to extend the upward move seen over the course of the previous session.

The futures advanced following the release of the Labor Department’s highly anticipated report on consumer price inflation in the month of May, which showed prices edged slightly higher.

The report said the consumer price index inched up by 0.1 percent in May after climbing by 0.4 percent in April. Economists had expected prices to tick up by 0.2 percent.

Excluding food and energy prices, core consumer prices rose by 0.4 percent in May, matching the increase seen in each of the two previous months as well as economist estimates.

The Labor Department also said the annual rate of consumer price growth slowed to 4.0 percent in May from 4.9 percent in April. Economists had expected the pace of growth to slow to 4.1.

The year-over-year growth in May marked the smallest annual increase since the period ending March 2021.

The annual rate of core consumer price growth also slowed to 5.3 percent in May from 5.5 percent in April, in line with expectations.

The data is likely to add to optimism about the Federal Reserve pausing its recent interest rate increases when the central bank announces its monetary policy decision on Wednesday.

Following the release of the report, CME Group’s FedWatch Tool is indicating a 97.1 percent chance the Fed leaves interest rates unchanged.

Stocks moved mostly higher during trading on Monday, adding to the modest gains posted last week. With the upward move on the day, the Nasdaq and the S&P 500 reached their best closing levels in over a year.

The major averages finished the day just off their highs of the session. The Nasdaq surged 202.78 points or 1.5 percent to 13,461.92, the S&P 500 jumped 40.07 points or 0.9 percent to 4,338.93 and the Dow climbed 189.55 points or 0.6 percent to 34,066.33.

The strength on Wall Street came as traders look ahead to the Federal Reserve’s highly anticipated monetary policy announcement on Wednesday.

The Fed is widely expected to pause its recent interest rate increases but is also likely to reiterate its commitment to bringing inflation down to its 2 percent target.

Overall trading activity remained relatively subdued, however, with a lack of major U.S. economic data keeping some traders on the sidelines.

Semiconductor and networking stocks saw substantial strength on the day, contributing to the jump by the Nasdaq.

Reflecting the strength in the sectors, the Philadelphia Semiconductor Index and the NYSE Arca Networking Index surged by 3.3 percent and 3.0 percent, respectively.

Significant strength was also visible among airline stocks, with the NYSE Arca Airline Index climbing by 1.8 percent to its best closing level in over a year.

Software, retail and computer hardware stocks also saw notable strength, while energy stocks moved sharply lower along with the price of crude oil.

Commodity, Currency Markets

Crude oil futures are jumping $1.74 to $68.86 a barrel after plummeting $3.05 to $67.12 a barrel on Monday. Meanwhile, after falling $7.50 to $1,969.70 in the previous session, gold futures are climbing $9.30 to $1,979 an ounce.

On the currency front, the U.S. dollar is trading at 139.15 yen compared to the 139.60 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.0813 compared to yesterday’s $1.0757.

Asia

Asian stocks advanced on Tuesday as China’s central bank lowered a short-term lending rate for the first time in 10 months and investors braced for central bank meetings in the United States, Europe and Japan.

Tech shares posted significant gains after a Wall Street Journal report said that the U.S. would let semiconductor manufacturers from South Korea and Taiwan to continue and expand their chip-making operations in China.

The U.S. dollar edged lower and the benchmark 10-year U.S. Treasury bond yield fluctuated between 3.7 percent and 3.75 percent as investors awaited the release of U.S. CPI data for May later in the day and the Federal Reserve’s highly anticipated policy decision scheduled on Wednesday.

Amid signs of cooling inflation, the Fed is expected to pause its interest rate hike campaign for the first time in 15 months.

Chinese shares fluctuated before ending slightly higher as the country’s central bank cut short-term borrowing costs to boost growth.

The benchmark Shanghai Composite Index edged up 0.2 percent to 3,233.67 ahead of a slew of Chinese data due later in the week. Hong Kong’s Hang Seng Index rose 0.6 percent to 19,521.42.

Japanese shares led regional gains on Fed pause hopes and expectations of more Chinese stimulus. The Nikkei 225 Index jumped 1.8 percent to 33,018.65 on expectations that the Bank of Japan will stick to its dovish stance on Friday. The broader Topix closed 1.2 percent higher at 2,264.79.

Technology stocks followed their U.S. peers higher, with Advantest and Tokyo Electron both surging around 5 percent.

Technology investment house SoftBank Group soared 5.3 percent after Reuters reported that chipmaker Intel was in talks to be an anchor investor in the initial public offering of Softbank’s chip designing unit, Arm.

Seoul stocks eked out modest gains, with the Kospi closing up 0.3 percent at 2,637.95. Chipmakers Samsung Electronics and SK Hynix rallied 1.4 percent and 4.1 percent, respectively.

Retail and cosmetic shares underperformed due to escalating tensions between Seoul and Beijing.

Australian markets ended modestly higher as traders returned to their desks after a long holiday weekend. The benchmark S&P/ASX 200 Index inched up 0.2 percent to 7,138.90, with tech and healthcare stocks leading the uptick. The broader All Ordinaries Index settled 0.2 percent higher at 7,329.10. Pro Medicus, Xero, WiseTech soared 4-5 percent.

Europe

European stocks are trading higher on Tuesday as investors react to strong economic data from Germany and China’s surprise rate cut.

German consumer price inflation climbed 6.1 percent annually in May, slower than the 7.2 percent rise in April, Destatis reported. That was in line with the flash data published on May 31.

Further, this was the weakest inflation since March 2022, when prices had risen 5.9 percent.

Similarly, EU-harmonized inflation slowed to 6.3 percent from 7.6 percent in April, as estimated.

The German ZEW headline number showed that the economic sentiment index unexpectedly improved to -8.5 from -10.7 seen in May. Analysts had expected a score of -13.0.

While the U.K.’s FTSE 100 Index has inched up by 0.1 percent, the French CAC 40 Index and the German DAX Index are both up by 0.3 percent.

ProSiebenSat.1 has moved to the upside. The German private broadcaster announced that Wolfgang Link, former Chief Entertainment Officer and CEO of Seven One Entertainment Group, has decided to leave the Group as of July 15, 2023.

Durr Group shares have also jumped. The mechanical and plant engineering firm said that it has signed a deal to acquire BBS Automation Group.

China-exposed luxury giant LVMH and Hermes International have also rallied after the People’s Bank of China (PBOC) cut its seven-day reverse repo rate by 10 basis points in a bid to restore market confidence and prop up slowing economic growth.

Miners Anglo American, Antofagasta and Glencore have also surged in London, tracking higher base metal prices.

Tatton Asset Management has also rallied after reporting an increase in full-year pre-tax profit and assets.

Swedish industrial technology group Hexagon has also soared after it announced a collaboration with Nvidia.

U.S. Economic Reports

The Labor Department released its highly anticipated report on consumer price inflation in the month of May on Tuesday, showing prices edged slightly higher.

The report said the consumer price index inched up by 0.1 percent in May after climbing by 0.4 percent in April. Economists had expected prices to tick up by 0.2 percent.

Excluding food and energy prices, core consumer prices rose by 0.4 percent in May, matching the increase seen in each of the two previous months as well as economist estimates.

The Labor Department also said the annual rate of consumer price growth slowed to 4.0 percent in May from 4.9 percent in April. Economists had expected the pace of growth to slow to 4.1.

The year-over-year growth in May marked the smallest annual increase since the period ending March 2021.

The annual rate of core consumer price growth also slowed to 5.3 percent in May from 5.5 percent in April, in line with expectations.

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) are seeing significant pre-market strength after the business software giant reported fiscal fourth quarter results that beat analyst estimates on both the top and bottom lines.

Retailer Urban Outfitters (URBN) is also likely to move to the upside after Morgan Stanley upgraded its rating on the company’s stock to Overweight from Equal Weight.

On the other hand, shares of First Horizon (FHN) may see initial weakness after JPMorgan downgraded its rating on the financial services company to Neutral from Overweight.

Tech giant Apple (AAPL) may also move to the downside after UBS downgraded its rating on the company’s stock to Neutral from Buy.