Positive Reaction To Inflation Data May Lead To Uptick On Wall Street

Positive Reaction To Inflation Data May Lead To Uptick On Wall Street

The major U.S. index futures are currently pointing to a modestly higher open on Monday, with stocks likely to move to the upside as traders return to their desks following the long Easter weekend.

Traders finally have the opportunity to react to closely watched U.S. consumer price inflation data that was released while the markets were closed for Good Friday.

The Commerce Department report showed consumer prices rose by slightly less than expected, while the annual rate of growth accelerated in line with estimates.

The report said consumer prices rose by 0.3 percent in February after climbing by an upwardly revised 0.4 percent in January.

Economists had expected consumer prices to advance by 0.4 percent compared to the 0.3 percent increase originally reported for the previous month.

Meanwhile, the report said the annual rate of consumer price growth ticked up to 2.5 percent in February from 2.4 percent in January, in line with estimates.

Excluding food and energy prices, core consumer prices also rose by 0.3 percent in February after climbing by an upwardly revised 0.5 percent in January. The increase matched expectations.

The annual rate of core consumer price growth slowed to 2.8 percent in February from an upwardly revised 2.9 percent in January.

Economists had expected the pace of core price growth to come in unchanged compared to the 2.8 percent originally reported for the previous month.

The readings on inflation, which are said to be preferred by the Federal Reserve, were included in the Commerce Department’s report on personal income and spending in February.

“By the time the Fed meets in June, the data should be convincing enough for them to commence it’s rate normalization process,” Jeffrey Roach, Chief Economist for LPL Financial, said following the release of the report. “But where we sit today, markets need to have the same patience the Fed is exhibiting.”

Following the strong upward move seen late in Wednesday’s session, stocks showed a lack of direction over the course of the trading day on Thursday. Despite the choppy trading, the Dow and the S&P 500 reached new record closing highs.

The major averages eventually ended the session narrowly mixed. While the Nasdaq edged down 20.06 points or 0.1 percent to 16,379.46, the Dow inched up 47.29 points or 0.1 percent to 39,807.37 and the S&P 500 crept up 5.86 points or 0.1 percent to 5,254.35.

For the holiday-shortened week, the Dow advanced by 0.8 percent and the S&P 500 rose by 0.4 percent, but the Nasdaq fell by 0.3 percent.

The choppy trading on Wall Street came as traders seemed reluctant to make significant moves ahead of the release of a Commerce Department report on personal income and spending on Friday that includes readings on inflation said to be preferred by the Federal Reserve.

While the inflation data could impact the outlook for interest rates, traders will have to wait until next Monday to react to the report due to the markets being closed for Good Friday.

Economists expect the annual rate of consumer price growth to inch up to 2.5 percent in February from 2.4 percent in January, while the annual rate of core consumer price growth is expected to come in unchanged at 2.8 percent.

The holiday will also see Fed Chair Jerome Powell participate in a moderated discussion before the Federal Reserve Bank of San Francisco Macroeconomics and Monetary Policy Conference.

With the focus on Friday’s inflation data, traders largely shrugged off a slew of U.S. economic data released this morning.

The Labor Department released a report showing first-time claims for U.S. unemployment benefits unexpectedly edged slightly lower in the week ended March 23rd.

The report said initial jobless claims dipped to 210,000, a decrease of 2,000 from the previous week’s revised level of 212,000.

Economists had expected jobless claims to rise to 215,000 from the 210,000 originally reported for the previous week.

A separate report released by the Commerce Department showed the U.S. economy unexpectedly grew by more than previously estimated in the fourth quarter of 2023.

Revised data showed real gross domestic product surged by 3.4 percent in the fourth quarter compared to the previously reported 3.2 percent jump. Economists had expected the pace of GDP growth to be unrevised.

The National Association of Realtors also released a report showing a notable rebound by pending home sales in the month of February.

NAR said its pending home sales index shot up by 1.6 percent to 75.6 in February after plunging by 4.7 percent to a revised reading of 74.4 in January.

Economists had expected pending home sales to jump by 1.5 percent compared to the 4.9 percent nosedive originally reported for the previous month.

Separately, the University of Michigan released revised data showing an unexpected improvement in U.S. consumer sentiment in the month of March.

The report said the consumer sentiment index for March was upwardly revised to 79.4 from the preliminary reading of 76.5. Economists had expected the reading to be unrevised.

With the unexpected upward revision, the consumer sentiment index for March is now above the final February reading of 76.9.

Reflecting the lackluster performance by the broader markets, most of the major sectors showed only modest moves on the day.

Gold stocks extended the rally seen during Wednesday’s session, however, with the NYSE Arca Gold Bugs Index surging by 2.8 percent to a three-month intraday high. The continued strength among gold stocks came amid a jump by the price of the precious metal.

A sharp price increase by the price of crude oil also contributed to considerable strength among oil producer stocks, driving the NYSE Arca Oil Index up by 1.4 percent to a record closing high.

Housing, transportation and natural gas stocks also saw notable strength on the day, while some weakness was visible among biotechnology stocks.

Other Markets

Commodity, Currency Markets

Crude oil futures are slipping $0.30 to $82.87 a barrel after surging $1.82 to $83.17 a barrel last Thursday. Meanwhile, after jumping $25.70 to $2,238.40 an ounce in the previous session, gold futures are spiking $30.50 to $2,268.90 an ounce.

On the currency front, the U.S. dollar is trading at 151.44 yen versus the 151.35 yen it fetched on Friday. Against the euro, the dollar is trading at $1.0779 compared to last Friday’s $1.0790.

Asia

Asian stocks turned in a mixed performance in thin holiday trading on Monday, with markets in Hong Kong, New Zealand and Australia closed for holidays.

The dollar held steady as soft U.S. inflation data boosted hopes that the Federal Reserve could cut interest rates in June.

A closely monitored gauge of U.S. inflation rose moderately in February 2024 and the cost of services outside housing slowed considerably, increasing the likelihood of an interest rate cut at the Fed’s June meeting.

The personal consumption expenditures (PCE) price index rose 0.3 percent in February, while economists had forecast a 0.4 percent increase. At the same time, robust consumer spending underscored the residence of the U.S. economy.

The latest U.S. inflation data is “along the lines of what we would like to see,” Fed Chair Jerome Powell said on Friday at a conference and repeated the central bank is no hurry to cut interest rates. He also acknowledged the risks of leaving interest rates where they are now.

Gold continued its historic run to trade at a record high in Asian trading, while oil edged up slightly amid expectations of tighter supply from OPEC+ cuts and attacks on Russian refineries.

China’s Shanghai Composite Index jumped 1.2 percent to 3,077.38 after an official survey showed manufacturing activity expanded in March. The purchasing managers index rose to 50.8 from 49.1 in February.

In addition, the Caixin Global manufacturing survey for March showed China’s factory activity expanded at its fastest rate in 13 months. The corresponding PMI inched up to 51.1, above expectations for 51.

Japanese markets fell sharply to hit a two-week low as the yen held near levels that have traders on guard for a currency intervention.

Japan’s quarterly Tankan survey unveiled mixed economic sentiment among the nation’s large businesses.

The main index of sentiment among big manufacturers fell to +11 in March from +13 in the December survey, while a reading on the country’s services sector reached a 33-year high in the first quarter.

The Nikkei 225 Index tumbled 1.4 percent to 39,803.09, marking its lowest close since March 18. The broader Topix Index settled 1.7 percent lower at 2,721.22.

Chip-related companies led losses, with Tokyo Electron and Advantest falling 3.2 percent and 5 percent, respectively.

Automaker Toyota Motor slumped and heavy machinery manufacturers such as Kawasaki Heavy Industries and Mitsubishi Heavy Industries lost 4-6 percent.

South Korean stocks ended on a flat note, with the Kospi finishing marginally higher at 2,747.86 – extending gains for a second day running on revived hopes for U.S. rate cuts. Korean Air, Hanjin KAL Corp and JejuAir jumped 2-4 percent.

Europe

The major European markets were all closed on the day for Easter Monday.

U.S. Economic Reports

The Institute for Supply Management is scheduled to release its report on manufacturing activity in the month of March at 10 am ET. The ISM’s manufacturing PMI is expected to inch up to 48.4 in March from 47.8 in February, although a reading below 50 would still indicate contraction.

Also at 10 am ET, the Commerce Department is due to release its report on construction spending in the month of February. Construction spending is expected to climb by 0.6 percent in February after edging down by 0.2 percent in January.

Federal Reserve Board Governor Lisa Cook is scheduled to give acceptance remarks before a Lifetime Achievement Awards Ceremony hosted by the Cook Center at Duke University at 6:50 pm ET.

Stocks In Focus

Shares of 3M (MMM) may move to the upside after the manufacturer completed the planned spin-off of its health care business, launching Solventum Corporation as an independent company.

Chipmaker Micron Technology (MU) may also see initial strength after Bank of America raised its price target on the company’s stock to $144 per share from $120 per share.

Meanwhile, shares of MicroStrategy (MSTR) may come under pressure following news Executive Chairman Michael Saylor sold nearly 4,000 shares of the cloud services company’s stock last week.