Tamer Than Expected Inflation Data May Lead To Initial Surge On Wall Street

The major U.S. index futures are currently pointing to a sharply higher open on Tuesday, with stocks likely to show a strong move to the upside after ending the previous session narrowly mixed.

The futures surged following the release of the Labor Department’s highly anticipated report on consumer price inflation in the month of October.

The Labor Department said its consumer price index was unchanged in October after climbing by 0.4 percent in September. Economists had expected consumer prices to inch up by 0.1 percent.

Excluding food and energy prices, core consumer prices edged up by 0.2 percent in October after rising by 0.3 percent in September. Core prices were expected to rise by another 0.3 percent.

The report also said the annual rate of consumer price growth slowed to 3.2 percent in October from 3.7 percent in September. Economists had expected the pace of growth to decelerate to 3.3 percent.

Core consumer prices were up by 4.0 percent compared to the same month a year ago, reflecting the smallest year-over-year increase since September 2021.

The annual rate of core consumer price growth was expected to come in unchanged from 4.1 percent in the previous month.

The tamer than expected inflation is likely to add to optimism that the Federal Reserve will refrain from future interest rates hikes.

Treasury yields have moved sharply lower following the release of the report, potentially adding to the buying interest on Wall Street.

After recovering from an early move to the downside, stocks turned in a lackluster performance throughout much of the trading session on Monday. The major averages spent most of the afternoon lingering near the unchanged line.

The major averages eventually ended the day narrowly mixed. While the Dow inched up 54.77 points or 0.2 percent to 34,337.87, the Nasdaq dipped 30.36 points or 0.2 percent to 13,767.74 and the S&P 500 edged down 3.69 points or 0.1 percent to 4,411.55.

The early weakness on Wall Street came as some traders looked to cash in on last Friday’s rally, which lifted the tech-heavy Nasdaq to a nearly two-month closing high.

Negative sentiment was also generated in reaction to news credit rating agency Moody’s has lowered its outlook for the U.S.’ credit rating to negative from stable amid concerns about a possible government shutdown.

Moody’s reaffirmed the U.S. credit rating at Aaa but said it “expects that the U.S.’ fiscal deficits will remain very large, significantly weakening debt affordability.”

The selling pressure was partly offset by a report from the New York Federal Reserve showing a modest decrease in consumer inflation expectations.

The New York Fed said inflation expectations declined at the one-year and five-year ahead horizons in October, falling to 3.6 percent from 3.7 percent and to 2.7 percent from 2.8 percent, respectively.

Overall trading activity remained somewhat subdued, however, as traders looked ahead to the release of key inflation data.

The inflation data could have a significant impact on the outlook for interest rates, with traders recently expressing optimism the Federal Reserve is done raising rates.

Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.

Utilities stocks showed a significant move to the downside, however, with the Dow Jones Utility Average falling by 1.3 percent.

Notable weakness was also visible among semiconductor stocks, as reflected by the 1.0 percent drop by the Philadelphia Semiconductor Index.

On the other hand, tobacco stocks moved sharply higher on the day, driving the NYSE Arca Tobacco Index up by 2.3 percent.

Commodity, Currency Markets

Crude oil futures are rising $0.34 to $78.60 a barrel after jumping $1.09 to $78.26 a barrel on Monday. Meanwhile, after advancing $12.50 to $1,950.20 an ounce in the previous session, gold futures are climbed $7.70 to $1,957.90 an ounce.

On the currency front, the U.S. dollar is trading at 150.85 yen compared to the 151.72 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.0797 compared to yesterday’s $1.0698.

Asia

Asian stocks advanced on Tuesday as investors eagerly awaited U.S. CPI data and a highly anticipated meeting between U.S. President Joe Biden and Chinese leader Xi Jinping on the sidelines of the Asia-Pacific Economic Cooperation summit in San Francisco.

A cautious undertone prevailed due to concerns about a possible U.S. government shutdown should Congress fail to pass a spending plan by Friday.

The dollar index was up slightly, and gold was marginally lower, while oil extended overnight gains as OPEC’s revised outlook suggested robust demand for 2023.

China’s Shanghai Composite Index rose 0.3 percent to 3,056.07 after data showed Chinese credit growth remained steady in October on the back of a big jump in government bond sales to finance stimulus.

Hong Kong’s Hang Seng Index edged down 0.2 percent to 17,396.86, giving up earlier gains as caution prevailed ahead of a range of Chinese economic data due Wednesday, including reports on retail sales, industrial production and fixed-asset investment.

Japanese shares eked out modest gains as a battered yen, which was stuck near a three-decade low against the dollar, boosted auto stocks.

The Nikkei 225 Index rose 0.3 percent to 32,695.93, while the broader Topix Index settled 0.4 percent higher at 2,345.29.

Toyota Motor, Nissan and Honda Motor climbed 1-2 percent. Tech stocks such as Advantest and Tokyo Electron jumped 3-4 percent.

A former BoJ official stated that the central bank is likely to raise short-term rates to around 0.0 percent from -0.1 percent in April 2024.

Seoul stocks recovered from a one-week low, with the Kospi jumping 1.2 percent to 2,433.25, led by battery makers, tech and chemical stocks. LG Chem, Naver, Kakao and LG Energy Solution surged 3-5 percent.

Australian markets recovered from an 11-month low despite a measure of consumer sentiment deteriorating in November amid higher interest rates.

The benchmark S&P/ASX 200 Index advanced 0.8 percent to 7,006.70, marking its highest level since November 9 as higher iron ore prices lifted miners.

Heavyweights BHP and Rio Tinto rose 1.4 percent and 2 percent, respectively, while smaller rival Fortescue Metals Group surged 2.7 percent. Energy stocks also rallied, with Santos gaining 2.5 percent.

The broader All Ordinaries Index closed 0.9 percent higher at 7,207.10 ahead of wages and employment data due later in the week.

Across the Tasman, New Zealand benchmark S&P/NZX 50 Index ended 0.7 percent higher at 11,173.28.

Europe

After experiencing cautious trading earlier in the session, European stocks have moved notably higher following the U.S. inflation data.

While the German DAX Index has surged by 1.3 percent, the French CAC 40 Index is up by 0.9 percent and the U.K.’s FTSE 100 Index is up by 0.2 percent.

Eurozone bond yields have struggled for direction following hawkish comments from ECB policymakers pushing against expectations for rate cuts.

ECB president Christine Lagarde said in an interview over the weekend that no change in interest rates should be expected in the “next couple of quarters.”

In corporate news, commodity giant Glencore has rallied in London after it agreed to buy a majority stake in Teck Resources Ltd.’s coal business for $6.93 billion in cash.

Hill & Smith, an engineering & construction company, has also jumped after reporting higher revenues for the four-month period ending October 31.

Events organizer Informa has also shown a substantial move to the upside after raising its full-year guidance.

Germany’s Delivery Hero has also surged after the online takeaway food company raised its full-year outlook.

RWE has also moved notably lower as the utility reported an 82 percent increase in core profit for the first nine months.

Meanwhile, Vodafone Group shares have fallen. The telecommunications company reported a much lower pre-tax profit for the first half of fiscal 2024, reflecting adverse foreign-exchange rate movements and business disposals in the prior year.

U.S. Economic Reports

With a sharp pullback in gasoline prices offsetting a continued increase in shelter prices, the Labor Department released a report on Tuesday showing U.S. consumer prices came in unchanged in the month of October.

The Labor Department said its consumer price index was unchanged in October after climbing by 0.4 percent in September. Economists had expected consumer prices to inch up by 0.1 percent.

Excluding food and energy prices, core consumer prices edged up by 0.2 percent in October after rising by 0.3 percent in September. Core prices were expected to rise by another 0.3 percent.

The report also said the annual rate of consumer price growth slowed to 3.2 percent in October from 3.7 percent in September. Economists had expected the pace of growth to decelerate to 3.3 percent.

Core consumer prices were up by 4.0 percent compared to the same month a year ago, reflecting the smallest year-over-year increase since September 2021.

The annual rate of core consumer price growth was expected to come in unchanged from 4.1 percent in the previous month.

At 10 am ET, Federal Reserve Vice Chair for Supervision Michael Barr is scheduled to testify before a U.S. Senate Banking Committee hearing on “Oversight of Financial Regulators.”

Cleveland Federal Reserve President Loretta Mester is due to give brief opening remarks before a virtual “Conversations on Central Banking: The Unequal Burden of Inflation” event at 11 am ET.

At 12:45 pm ET, Chicago Federal Reserve President Austan Goolsbee is scheduled to participate in a conversation on the economy and monetary policy before the Detroit Economic Club.

Stocks In Focus

Shares of Fisker (FSR) are plummeting in pre-market trading after the electric vehicle startup reported a wider than expected third quarter loss and lowered its full-year production forecast.

Sports footwear and apparel maker On Holding (ONON) is also seeing significant pre-market weakness despite reporting third quarter results that exceeded analyst estimates.

On the other hand, shares of Take-Two Interactive Software (TTWO) may move to the upside after Deutsche Bank upgraded its rating on the video game company’s stock to Buy from Hold.

Food and beverage giant Kraft Heinz (KHC) may also see initial strength after Bernstein upgraded its rating on the company’s stock to Outperform from Market Perform.