Tamer Than Expected Inflation Data May Spark Early Rally On Wall Street

The major U.S. index futures are currently pointing to a notably higher open on Wednesday, with stocks likely to see initial strength amid a positive reaction to a closely watched report on consumer price inflation.

The futures surged following the release of a Labor Department report showing U.S. consumer prices were unexpectedly flat in the month of May.

The Labor Department said its consumer price index came in unchanged in May after rising by 0.3 percent in April. Economists had expected consumer prices to inch up by 0.1 percent.

The unchanged reading came as a 3.5 percent nosedive by gasoline prices helped offset a continued increase in prices for shelter.

Excluding food and energy prices, core consumer prices rose by 0.2 percent in May after climbing by 0.3 percent in April. Core prices were expected to increase by another 0.3 percent.

The report also said the annual rate of consumer price growth slowed to 3.3 percent in May from 3.4 percent in April. Economists had expected the pace of growth to remain unchanged.

The annual rate of core consumer price growth also slowed to 3.4 percent in May from 3.6 percent in April. The pace of growth was expected to dip to 3.5 percent.

The slower than expected annual growth rates are likely to lead to renewed optimism about the outlook for interest rates ahead of this afternoon’s monetary policy announcement by the Federal Reserve.

While the Fed is widely expected to leave interest rates unchanged, traders are likely to pay close attention to the accompanying statement as well as officials’ latest projections for the economy and interest rates.

The major U.S. stock indexes all moved to the downside in early trading on Tuesday but turned mixed over the course of the session.

While the Nasdaq and the S&P 500 recovered from the early weakness to reach new record closing highs, the narrower Dow climbed off its worst levels but spent the rest of the day in negative territory.

The Nasdaq jumped 151.07 points or 0.9 percent to 17,343.55 and the S&P 500 rose 14.53 points or 0.3 percent to 5,375.32, but the Dow fell 120.62 points or 0.3 percent to 38,747.42.

The advance by the tech-heavy Nasdaq was partly due to a surge by shares of Apple (AAPL), with the tech giant surging by 7.3 percent to a record after unveiling new AI features that may drive users to upgrade their devices.

Meanwhile, traders also continued to look ahead to today’s two potentially major market moving economic events.

Banking stocks moved sharply lower, dragging the KBW Bank Index down by 2.0 percent to its lowest closing level in nearly two months.

Considerable weakness was also visible among housing stocks, as reflected by the 1.4 percent loss posted by the Philadelphia Housing Sector Index.

Airline stocks also showed a significant move to the downside on the day, with the NYSE Arca Airline Index falling by 1.4 percent.

Brokerage, gold and steel stocks also moved notably lower, while strength among software, computer hardware and networking stocks contributed to the advance by the Nasdaq.

Commodity, Currency Markets

Crude oil futures are surging $1.04 to $78.94 a barrel after rising $0.16 to $77.90 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $2,346.10, up $19.50 compared to the previous session’s close of $2,326.60. On Tuesday, gold edged down $0.40.

On the currency front, the U.S. dollar is trading at 156.38 yen compared to the 157.13 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0818 compared to yesterday’s $1.0741.

Asia

Asian stocks drifted lower on Wednesday as investors awaited key U.S. inflation data as well as a Federal Reserve policy decision later in the day for additional clues on the outlook for interest rates.

Producer and consumer price data coming out of China attracted investor attention early in the session. Chinese consumer inflation held steady in May, while factory gate inflation eased, official data revealed.

Investors also weighed reports suggesting that the Biden administration is considering further restrictions on China’s access to chip technology used for artificial intelligence.

The dollar held firm, keeping gold under pressure in Asian trading. Gold was marginally lower, while oil extended gains for a third straight session on signs of declining U.S. inventories and OPEC’s decision to maintain its forecast for relatively strong growth in global oil demand in 2024.

China’s Shanghai Composite Index wobbled between gains and losses before closing 0.3 percent higher at 3,037.47. Hong Kong’s Hang Seng Index tumbled 1.3 percent to 17,937.84.

China Evergrande New Energy Vehicle Group shares plummeted 21 percent after the subsidiary of developer China Evergrande said it faces the risk of losing key assets such as land and equipment.

Japanese markets declined as investors braced for the U.S. and Japanese central bank policy decisions. Speculation is rife that the Bank of Japan will trim back JGB purchases in its announcement from Friday’s meeting.

The Nikkei 225 Index slid 0.7 percent to 38,876.71, while the broader Topix Index settled 0.7 percent lower at 2,756.44.

Heavyweights like Fast Retailing and Recruit Holdings fell 2.5 percent and 3 percent, respectively, while TDK surged 4.4 percent and Murata Manufacturing jumped 2.6 percent.

Data showed earlier in the day that Japanese wholesale price inflation jumped in May due to both the rising cost of electricity and the weak yen.

Seoul stocks closed higher, with the Kospi rallying 0.8 percent to 2,726.17. Technology stocks performed well after Apple unveiled new AI features meant to rekindle demand for iPhones. Heavyweight Samsung Electronics rallied 1.7 percent SK Hynix added 1.2 percent.

Australian markets ended lower, with miners and tech stocks pacing the decliners. Energy stocks outperformed due to firmer crude oil and natural gas prices.

The benchmark S&P ASX 200 Index dropped 0.5 percent to 7,715.50, while the broader All Ordinaries Index ended down 0.5 percent at 7,963.10.

Across the Tasman, New Zealand’s benchmark S&P NZX-50 Index slipped 0.4 percent to 11,741.88.

Europe

European stocks have moved sharply higher on Wednesday as investors react to the U.S. consumer price inflation data and look ahead to the Federal Reserve’s monetary policy decision.

Euro zone government bond yields have dropped after having risen to their highest levels in around seven months on Tuesday following Moody’s warning of a downgrade on French debt.

In economic news, German consumer price inflation increased for the first time in five months in May, as initially estimated, according to final data from Destatis.

Consumer price inflation rose to 2.4 percent in May from April’s stable growth of 2.2 percent, which was the lowest rate in three years. That was in line with the flash data published earlier.

On the other hand, EU-harmonized inflation climbed to 2.8 percent from 2.4 percent, as estimated.

Elsewhere, the U.K. economy stagnated in April as growth in services output was offset by decreases in both production and construction output, the Office for National Statistics said earlier today.

Gross domestic product remained flat on month, as expected, after expanding 0.4 percent in March. In the three months to April, real GDP advanced 0.7 percent from the preceding three months.

While the German DAX Index has jumped by 1.2 percent, the U.K.’s FTSE 100 Index is up by 1.1 percent and the French CAC 40 Index is up by 1.0 percent.

Rentokil shares have surged in London after activist investor Trian Fund Management acquired a substantial stake in the pest-control company.

Landore Resources has also skyrocketed after successfully raising £3.683 million through a subscription of new shares.

Meanwhile, Legal & General has tumbled as its new chief executive set out plans to restructure the business into three core units.

U.S. Economic Reports

With a steep drop in gasoline prices partly offsetting a continued increase in shelter prices, the Labor Department released a report on Wednesday showing U.S. consumer prices were unexpectedly flat in the month of May.

The Labor Department said its consumer price index came in unchanged in May after rising by 0.3 percent in April. Economists had expected consumer prices to inch up by 0.1 percent.

Excluding food and energy prices, core consumer prices rose by 0.2 percent in May after climbing by 0.3 percent in April. Core prices were expected to increase by another 0.3 percent.

Meanwhile, the report said the annual rate of consumer price growth slowed to 3.3 percent in May from 3.4 percent in April. Economists had expected the pace of growth to remain unchanged.

The annual rate of core consumer price growth also slowed to 3.4 percent in May from 3.6 percent in April. The pace of growth was expected to dip to 3.5 percent.

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended June 7th.

Crude oil inventories are expected to decrease by 1.8 million barrels after rising by 1.2 million barrels in the previous week.

The Federal Reserve is scheduled to announce its monetary policy decision at 2 pm ET, followed by Fed Chair Jerome Powell’s post-meeting press conference at 2:30 pm ET.