Producer Price Inflation Data May Weigh On Wall Street

The major U.S. index futures are currently pointing to modestly lower open on Tuesday, with stocks likely to move to the downside after ending yesterday’s lackluster session narrowly mixed.

The futures edged lower following the release of a Labor Department report showing producer prices in the U.S. increased by more than expected in the month of April.

The Labor Department said its producer price index for final demand climbed by 0.5 percent in April after a revised 0.1 percent dip in March.

Economists had expected producer prices to rise by 0.3 percent compared to the 0.2 percent uptick originally reported for the previous month.

The report also said the annual rate of producer price growth accelerated to 2.2 percent in April from a downwardly revised 1.8 percent in March.

The year-over-year producer price growth was expected to inch up to 2.2 percent from the 2.1 percent originally reported for the previous month.

The data may lead to renewed uncertainty about the outlook for interest rates ahead of the release of more closely watched consumer price inflation data on Wednesday.

Nonetheless, overall activity may be somewhat subdued in early trading ahead of remarks by Federal Reserve Chair Jerome Powell.

Powell is scheduled to participate in a moderated discussion with De Nederlandsche Bank President Klaas Knot at the annual general meeting of the Foreign Bankers’ Association.

Following the strong upward move seen last week, stocks turned in a relatively lackluster performance during trading on Monday. The major averages moved to the upside early in the session but spent the day bouncing back and forth across the unchanged line.

The major averages eventually ended the day narrowly mixed. While the Nasdaq rose 47.37 points or 0.3 percent to 16,388.24, the S&P 500 edged down 1.26 points or less than a tenth of a percent to 5,221.42 and the Dow dipped 81.33 points or 0.2 percent to 39,431.51.

The early strength on Wall Street came as stocks continued to benefit from recent upward momentum, which led to an eight-day winning streak for the Dow.

Renewed optimism about an interest rate cut by Federal Reserve in the coming months contributed to the recent strength.

Buying interest waned over the course of the session, however, as key inflation data due this week could have a significant impact on the outlook for rates.

Among individual stocks, shares of GameStop (GME) soared after social media persona “Roaring Kitty,” whose posts helped spark a frenzy of activity in the video game retailer’s stock in 2021, posted on X for the first time in three years.

Website building and hosting company Squarespace (SQSP) also surged after entering into a definitive agreement to go private in an all-cash transaction valued at approximately $6.9 billion.

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

Airline stocks showed a substantial move to the upside, however, with the NYSE Arca Airline Index surging by 2.5 percent.

American Airlines (AAL) and United Airlines (UAL) posted notable gains after HSBC initiated coverage of the stocks with Buy ratings.

Considerable strength was also visible among biotechnology stocks, driving the NYSE Arca Biotechnology Index up by 1.1 percent to its best closing level in a month.

Shares of Incyte (INCY) spiked by 8.6 percent after the biotechnology company announced its Board of Directors approved a share repurchase authorization of $2.0 billion.

Meanwhile, housing stocks came under pressure over the course of the session, dragging the Philadelphia Housing Sector Index down by 1.0 percent.

Commodity, Currency Markets

Crude oil futures are falling $0.37 to $78.75 a barrel after slumping $0.86 to $79.12 a barrel on Monday. Meanwhile, after tumbling $32 to $2,343 an ounce in the previous session, gold futures are rising $7.50 to $2,350.50 an ounce.

On the currency front, the U.S. dollar is trading at 156.59 yen compared to the 156.22 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.0800 compared to yesterday’s $1.0790.

Asia

Asian stocks ended narrowly mixed in muted trading on Tuesday as caution prevailed ahead of the release of U.S. inflation data that might influence the outlook for rates.

The dollar was firm and gold edged up, while oil dipped slightly as investors waited for further clarity on OPEC+ output policy.

Chinese markets ended on a flat note after a choppy session ahead of an expected announcement by the Biden administration on raising tariffs on Chinese EVs, semiconductors, batteries, solar cells, steel and aluminum.

The Shanghai Composite Index finished marginally lower at 3,145.77, while Hong Kong’s Hang Seng Index slipped 0.2 percent to close at 19,073.71.

Japanese stocks eked out modest gains, led by gains in the banking and mining sectors. Exporters also finished mostly higher, buoyed by a weaker yen.

The Nikkei 225 Index rose 0.5 percent to 38,356.06, while the broader Topix Index closed 0.3 percent higher at 2,730.95.

Japan’s producer price index rose by 0.9 percent in April compared to the same time period last year, the Bank of Japan revealed in a report today.

Seoul stocks edged up slightly, with the Kospi rising 0.1 percent to 2,730.34 as investors awaited cues from the release of U.S. consumer price and producer price inflation figures as well as Fed Chair Jerome Powell’s speech.

Financial stocks underperformed, with KB Financial Group and Hana Financial Group tumbling 2.5 percent and 3.5 percent, respectively.

Central bank data showed earlier in the day that Korea’s terms of trade rose for the fifth consecutive month in April, as export prices rose while import prices fell.

Australian markets ended slightly lower following a lackluster session on Wall Street overnight. The benchmark S&P ASX 200 Index dipped 0.3 percent to 7,726.80, while the broader All Ordinaries Index settled 0.3 percent lower at 7,995.70.

Across the Tasman, New Zealand’s benchmark S&P NZX-50 Index dipped 0.3 percent to 11,618.09 after data showed electronic retail sales contracted in April.

Europe

European stocks are turning in a mixed performance on Tuesday as investors react to the U.S. producer price inflation data and look ahead to remarks by Fed Chair Jerome Powell.

Closer to home, final data from Destatis revealed that German consumer price inflation stood at 2.2 percent in April, the same as in March. That was in line with the flash data published on April 29. The current 2.2 percent inflation rate is the lowest since May 2021.

On the other hand, EU harmonized inflation rose slightly to 2.4 percent from 2.3 percent, as estimated.

The headline German ZEW Economic Sentiment Index improved to 47.1 in May from 42.9 in April.

The British pound steadied as data showed the U.K. job market is cooling.

Average earnings in the U.K. grew better than expected in March and the jobless rate rose slightly, while the fall in employment was less than expected and vacancies continued to decline, giving more evidence of a cooling labor market to Bank of England that is preparing to lower interest rates soon.

Wages excluding bonuses grew 6.0 percent year-on-year in the January to March period, preliminary data from the Office for National Statistics showed.

Bank of England (BoE) Chief Economist Huw Pill said today that it’s “not unreasonable” for the central bank to consider rate cuts over the summer.

While the U.K.’s FTSE 100 Index is up by 0.1 percent, the French CAC 40 Index is just below the unchanged line and the German DAX Index is down by 0.4 percent.

Vodafone has moved sharply higher as the telecom operator reported a 2.2 percent increase in organic earnings for 2024.

Veolia shares have also rallied in Paris after the French waste and water management company met first-quarter core profit expectations and announced it had bagged a $320 million water technology contract for a desalination plant in the United Arab Emirates.

Delivery Hero shares have also spiked after Uber Technologies agreed to acquire the German company’s foodpanda business in Taiwan for $950 million in cash.

On the other hand, gambling giant Flutter Entertainment has shown a notable move to the downside after reporting a wider quarterly net loss.

Mining giant Anglo American has also slumped in London after it unveiled plans to offload several assets as part of a turnaround effort.

Arms manufacturer Rheinmetall has also moved sharply lower after missing sales and profit forecasts in the first quarter.

Reinsurer Hannover Re has also fallen despite posting solid results in the first quarter and confirming its 2024 guidance.

U.S. Economic Reports

Producer prices in the U.S. increased by more than expected in the month of April, according to a report released by the Labor Department on Tuesday.

The Labor Department said its producer price index for final demand climbed by 0.5 percent in April after a revised 0.1 percent dip in March.

Economists had expected producer prices to rise by 0.3 percent compared to the 0.2 percent uptick originally reported for the previous month.

Prices for services led the way higher, advancing by 0.6 percent in April after edging down by 0.1 percent in March and showing the biggest increase since July 2023.

The report also said the annual rate of producer price growth accelerated to 2.2 percent in April from a downwardly revised 1.8 percent in March.

Economists had expected the year-over-year producer price growth to inch up to 2.2 percent from the 2.1 percent originally reported for the previous month.

Federal Reserve Board Governor Lisa Cook is due to speak on growth and change at community development financial institutions at “Expanding Access to Capital for CDFIs” hosted by the Federal Reserve Bank of New York at 9:15 am ET.

At 10 am ET, Federal Reserve Chair Jerome Powell is scheduled to participate in a moderated discussion with De Nederlandsche Bank (DNB) President Klaas Knot at the annual general meeting of the Foreign Bankers’ Association.

Kansas City Federal Reserve President Jeffrey Schmid is due to speak at an Agricultural Economic Summit hosted by Kansas City Fed at 8:15 pm ET.