Producer Price Inflation Data May Lead To Pullback On Wall Street

The major U.S. index futures are currently pointing to a lower open on Friday, with stocks likely to move back to the downside following the substantial rebound seen over the two previous sessions.

Renewed concerns about the outlook for interest rates may weigh on the markets following the release of a Labor Department report showing a bigger than expected increase in U.S. producer prices in the month of January.

The report said the producer price index for final demand rose by 0.3 percent in January after edging down by 0.1 percent in December. Economists had expected producer prices to inch up by 0.1 percent.

Excluding prices for food, energy, and trade services, core producer prices climbed by 0.6 percent in January after rising by 0.2 percent in December.

While the report also showed the annual rate of producer price growth slowed to 0.9 percent in January from 1.0 percent in December, economists had expected the pace of growth to decelerate to 0.6 percent.

Following the hotter-than expected consumer price inflation data released earlier this week, the data may add to concerns the Federal Reserve will postpone cutting interest rates longer than investors had hoped.

Stocks showed a lack of direction early in the session on Thursday but moved mostly higher over the course of the trading day. The major averages extended the significant rebound seen during Wednesday’s session, with the S&P 500 reaching a new record closing high.

The major averages finished the day just off their highs of the session. The Dow jumped 348.85 points or 0.9 percent to 38,773.12, the Nasdaq rose 47.03 points or 0.3 percent to 15,906.17 and the S&P 500 climbed 29.11 points or 0.6 percent to 5,029.73.

The higher close on Wall Street came as a Commerce Department report showing a much bigger than expected decrease in U.S. retail sales in the month of January led to renewed optimism about the outlook for interest rates.

The Commerce Department said retail sales slid by 0.8 percent in January after climbing by a downwardly revised 0.4 percent in December.

Economists had expected retail sales to edge down by 0.1 percent compared to the 0.6 percent increase originally reported for the previous month.

Excluding sales by motor vehicle and parts dealers, retail sales fell by 0.6 percent in January after rising by 0.4 percent in December. Ex-auto sales were expected to rise by 0.2 percent.

“The lower-than-forecast retail sales number could be viewed as a positive for those looking for an early rate cut,” said Larry Tentarelli, Chief Technical Strategist, Blue Chip Daily Trend Report.”

The Federal Reserve also released a report showing industrial production in the U.S. unexpectedly edged slightly lower in the month of January.

The Fed said industrial production slipped by 0.1 percent in January compared to economist estimates for a 0.3 percent increase.

Meanwhile, the Labor Department released a report showing an unexpected decline in first-time claims for unemployment benefits in the week ended February 10th.

The report said initial jobless claims fell to 212,000, a decrease of 8,000 from the previous week’s revised level of 220,000.

Economists had expected initial jobless claims to inch up to 220,000 from the 218,000 originally reported for the previous week.

The Labor Department also released a separate report this morning showing an unexpected increase U.S. import prices in the month of January.

Gold stocks turned in some of the market’s best performances on the day, resulting in a 3.4 percent spike by the NYSE Arca Gold Bugs Index. The rally by gold stocks came amid an increase by the price of the precious metal.

A sharp increase by the price of crude oil also contributed to considerable strength among energy stocks. Reflecting the strength in the sector, the Philadelphia Oil Service Index surged by 3.4 percent and the NYSE Arca Oil Index shot up by 2.4 percent.

Significant strength was also visible among computer hardware stocks, as reflected by the 3.1 percent gain posted by the NYSE Arca Computer Hardware Index.

Steel, banking and commercial real estate stocks also saw notable strength on the day, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are slipping $0.24 to $77.79 a barrel after jumping $1.39 to $78.03 a barrel on Thursday. Meanwhile, after climbing $10.60 to $2,014.90 an ounce in the previous session, gold futures are edging down $5.10 to $2,009.80 an ounce.

On the currency front, the U.S. dollar is trading at 150.53 yen versus the 149.94 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0744 compared to yesterday’s $1.0772.

Asia

Asian stocks followed Wall Street higher on Friday after stocks on Wall Street set a new record overnight following a decline in U.S. Treasury yields.

The dollar was on track for its fifth straight weekly gain ahead of producer price inflation, consumer sentiment and housing starts data due later in the day that might offer additional clues on the interest-rate outlook.

Gold was unchanged above the $2,000 per ounce level, while oil prices dipped slightly after climbing on Thursday amid signs that OPEC+ members are complying with supply cuts.

Mainland Chinese markets remained closed for the Lunar New Year holidays.

Hong Kong’s Hang Seng Index jumped 2.5 percent to 16,339.96, closing near a one-month high, led by property developers as policymakers intensify efforts to rescue the property sector from a deepening liquidity crisis.

Japanese markets hit a fresh 34-year high on dovish BOJ bets. BOJ Governor Kazuo Ueda told Japan’s parliament today that real wages will gradually turn positive and that the central bank will review stimulus, when the 2 percent inflation target comes into sight.

The Nikkei 225 Index settled 0.9 percent higher at 38,487.24, coming close to the record high hit during the hey days of the nation’s bubble economy in the 1980s. The broader Topix Index rallied 1.3 percent to 2,624.73.

Seoul stocks advanced after data showed South Korean semiconductor exports surged by 53 percent year-on-year in January. The Kospi climbed 1.3 percent to 2,648.76.

Australian markets rose notably as core Lithium companies such as Liontown Resources and Pilbara Minerals surged on hopes that lithium prices will do well down the track. Shares of the companies surged 11.9 percent and 7.2 percent, respectively.

The benchmark S&P/ASX 200 Index rose 0.7 percent to 7,658.30, while the broader All Ordinaries Index closed up 0.7 percent at 7,905.60.

QBE Insurance fell 1.7 percent despite more than doubling its annual profit. Telstra fell about 1 percent after announcing a review of its enterprise business.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index gained 0.7 percent to close at 11,724.48 after signs of improvement in the country’s manufacturing sector in January.

Europe

European stocks have moved mostly higher during trading on Friday amid expectations of interest-rate cuts in the second quarter.

ECB member and Bank of France head Francois Villeroy de Galhau said the central bank should favor gradual rate cuts rather than waiting too long to cut rates this year.

The risk of moving too late exists “at least” as much as that of moving too soon, he said in an interview with Belgian newspaper L’Echo.

In economic news, data showed U.K. retail sales rebounded by much more than expected in January. Retail sales surged by 3.4 percent in the month after sliding by 3.3 percent in December. Economists had forecast retail sales to increase by 1.5 percent in January.

Elsewhere, wholesale prices in Germany rose for the first time in four months in January, though they continued to fall compared to the same month last year mainly due to the decline in prices of mineral oil products, preliminary data from the statistical office Destatis revealed.

The wholesale price index rose 0.1 percent from the previous month after a revised 0.6 percent fall in December. This was the first monthly increase since September 2023, when wholesale prices rose 0.2 percent.

While the U.K.’s FTSE 100 Index has jumped by 1.4 percent, the German DAX Index and the French CAC 40 Index are up by 0.4 percent and 0.3 percent, respectively.

Metso shares have soared. The Finnish mining equipment maker gave an upbeat outlook after reporting better-than-expected earnings for the fourth quarter.

Italian financial group Unipol Gruppo have also surged after an announcement that it intends to buy out its unit UnipolSai MIL:US.

NatWest Group has also moved to the upside as the bank announced its biggest annual profit last year since the 2007 financial crisis.

Warehousing group Segro has also advanced after narrowing its FY23 loss before tax on rent growth and strong occupier demand.

Volkswagen has also risen after signing a supply agreement with India’s Mahindra & Mahindra on the use of key electric components of the German carmaker’s open platform for electric vehicles (EVs).

Meanwhile, Italian energy group ENI SpA has slumped as it revealed earnings for fourth quarter that decreased from the same period last year.

Reinsurance company Swiss Re has also fallen despite reporting a sharply higher profit for last year, mainly due to improved performance in its property-and-casualty reinsurance segment.

Dialight, the global leader in LED lighting for heavy industrial applications, has also slid on news that Fariyal Khanbabi has decided to step down as Chief Executive Officer and as a director of the company with immediate effect.

German automotive supplier Hella has also moved lower despite posting improved full-year portfolio-adjusted sales and operating income.

U.S. Economic Reports

The Labor Department released a report on Friday showing producer prices in the U.S. increased by more than expected in the month of January.

The report said the producer price index for final demand rose by 0.3 percent in January after edging down by 0.1 percent in December. Economists had expected producer prices to inch up by 0.1 percent.

Excluding prices for food, energy, and trade services, core producer prices climbed by 0.6 percent in January after rising by 0.2 percent in December.

New residential construction in the U.S. unexpectedly saw a substantial decrease in the month of January, according to a report released by the Commerce Department on Friday.

The report said housing starts plunged by 14.8 percent to an annual rate of 1.331 million in January from an upwardly revised rate of 1.562 million in December.

Economists had expected housing starts to rise to an annual rate of 1.470 million from the 1.460 million originally reported for the previous month.

The Commerce Department also said building permits fell by 1.5 percent to an annual rate of 1.470 million in January from a revised rate of 1.493 million in December.

Building permits, an indicator of future housing demand, were expected to increase to a rate of 1.510 million from the 1.495 million originally reported for the previous month.

At 9:10 am ET, Federal Reserve Vice Chair for Supervision Michael Barr is scheduled to speak on “Bank Supervision” before the Columbia Law School Banking Conference.

The University of Michigan is due to release its preliminary reading on consumer sentiment in the month of February at 10 am ET. The consumer sentiment index is expected to inch up to 80.0 in February after surging to 79.0 in January.

At 12:10 pm ET, San Francisco Federal Reserve President Mary Daly is scheduled to speak before the National Association for Business Economics 40th Annual Economic Policy Conference.