Looming Inflation Data May Lead To Choppy Trading On Wall Street

The major U.S. index futures are currently pointing to a roughly flat open on Monday, with stocks likely to show a lack of direction following the notable pullback seen in the previous week.

Traders may be reluctant to make significant moves ahead of the release of closely watched data on consumer and producer price inflation later in the week.

The inflation data may have a considerable impact on the outlook for interest rates following last week’s mixed monthly jobs report.

The annual rate of growth by core consumer prices, which exclude food and energy prices, is expected to slow to 5.0 percent from 5.3 percent.

Ahead of the inflation data, CME Group’s FedWatch Tool is indicating a 92.4 percent chance of another quarter point rate hike at the next Fed meeting later this month.

Stocks saw substantial volatility over the course of the trading session on Friday, with the major averages showing wild swings back and forth across the unchanged line following the release of the closely watched monthly jobs report.

The major averages moved to the downside going into the close and ended the day in negative territory. The Dow slid 187.38 points or 0.6 percent to 33,734.88, the Nasdaq edged down 18.37 points or 0.1 percent to 13,660.72 and the S&P 500 dipped 12.64 points or 0.3 percent to 4,398.95.

For the holiday-interrupted week, the Dow plunged by 2.0 percent, the S&P 500 tumbled by 1.2 percent and the Nasdaq slumped by 0.9 percent.

The volatility on Wall Street came after the Labor Department released a report showing U.S. employment increased by less than expected in the month of June.

The Labor Department said non-farm payroll employment jumped by 209,000 jobs in June, while economists had expected employment to shoot up by 225,000 jobs.

The report also showed the surges in employment in April and May were downwardly revised to 217,000 jobs and 306,000 jobs, respectively, reflecting a combined downward revision of 110,000.

Meanwhile, the Labor Department said the unemployment rate edged down to 3.6 percent in June from 3.7 percent in May, in line with economist estimates.

The report also showed annual wage growth remained elevated, coming in at 4.4 percent in June, unchanged from an upwardly revised reading in May.

Economists had expected the pace of growth to slow to 4.2 percent from the 4.3 percent originally reported for the previous month.

Following ADP’s report showing a much bigger than expected surge in private sector employment in June, the Labor Department report led to some uncertainty about the outlook for interest rates.

While the Federal Reserve is still widely expected to raise rates by another quarter point later this month, the outlook for further rate hikes is likely to be impacted by next week’s inflation data.

“A softer jobs report than widely expected has taken some of the steam out of recent market moves, but the labor market remains too tight for the Fed to relax,” said ING Chief International Economist James Knightley.

He added, “A July rate hike is coming, but labor data is the most lagging of indicators and softer inflation next week could see rate hike expectations for further out moderate a touch.”

Despite the lower close by the broader markets, oil services skyrocketed on the day, driving the Philadelphia Oil Service Index up by 6.4 percent to its best closing level in four months.

The rally by oil service came amid a sharp increase by the price of crude oil, as crude for August delivery is jumping $1.60 to $73.40 a barrel.

Considerable strength was also visible among airline stocks, which rebounded after falling sharply in the previous session. Following the 3.8 percent nosedive on Wednesday, the NYSE Arca Airline Index soared by 2.7 percent.

Oil producer, steel and financial stocks also ended the day significantly higher, while pharmaceutical and healthcare stocks showed notable moves to the downside

Commodity, Currency Markets

Crude oil futures are falling $0.60 to $73.26 a barrel after surging $2.06 to $73.86 a barrel last Friday. Meanwhile, after climbing $17.10 to $1,932.50 an ounce in the previous session, gold futures are sliding $8.80 to $1,923.70 an ounce.

On the currency front, the U.S. dollar is trading at 142.45 yen versus the 142.21 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.0946 compared to last Friday’s $1.0967.

Asia

Asian stocks ended Monday’s session on a mixed note after data showed China’s economy teetered on the brink of deflation in June, adding to the case for policymakers to launch more stimulus to boost growth.

Chinese shares edged up slightly amid hopes for more stimulus measures and as U.S. Treasury Secretary Janet Yellen gave a positive assessment of bilateral ties between the U.S. and China.

The benchmark Shanghai Composite Index inched up 0.2 percent to 3,203.70, while Hong Kong’s Hang Seng Index ended 0.6 percent higher at 18,479.72.

Chinese consumer price inflation remained flat in June, while producer prices fell the most since December 2015, reflecting weak domestic demand, data from the National Bureau of Statistics showed earlier in the day.

Japanese stocks fell notably to extend losses for a fifth consecutive session as a stronger yen weighed on automakers. The Nikkei 225 Index dropped 0.6 percent to 32,189.73, while the broader Topix ended 0.5 percent lower at 2,243.33.

Honda Motor, Toyota and Nissan ended down between 1.7 percent and 2.6 percent. Chip-related shares also lost ground, with Advantest, Tokyo Electron and Screen Holdings falling around 2 percent.

Seoul stocks closed lower amid signs China’s economy is slowing and the U.S. Federal Reserve may hike rates later this month. The Kospi slipped 0.2 percent to 2,520.70.

Australian markets gave up early gains to end lower as investors awaited U.S. inflation data due later in the week for cues on future monetary policy.

The benchmark S&P/ASX 200 Index fell 38.30 points, or 0.5 percent, to 7,004.0, marking its lowest level since March 28. The broader All Ordinaries Index closed 0.5 percent lower at 7,206.90.

Weak iron ore prices weighed on mining stocks, with heavyweights BHP and Rio Tinto both falling over 1 percent. Gold miners climbed, with Newcrest Mining, Northern Star and Regis Resources rallying 1-3 percent.

Europe

European stocks have moved mostly higher on Monday as weak inflation data from China added to the case for policymakers to launch more stimulus.

Meanwhile, investors shrugged off data showing that investor morale in the euro area sank more than expected in July. Sentix’s index for the euro zone dropped to -22.5 from -17.0 in June.

While the U.K.’s FTSE 100 Index had climbed by 0.5 percent, the German DAX Index is up by 0.7 percent and the French CAC 40 Index is up by 0.8 percent.

Future Plc, a specialist media company, has soared more than 7 percent after announcing a 45-million-pound share buyback.

Beter Bed Holding N.V. has also skyrocketed after it accepted a bid from Torqx Capital Partners, which values the firm at 168 million euros.

Bayer shares has also climbed after reports that the German drugs-to-pesticides giant could spin off and list its agricultural division.

French ophthalmology company Nicox SA has also jumped. The company said it estimates potential sales for NCX 470 of more than $300 million within 8 years from launching in the U.S. and China.

Meanwhile, self-storage company Big Yellow Group has fallen despite reporting a 6.7 percent increase in first quarter revenue.

Casino Guichard Perrachon has also dropped on concerns about debt restructuring ahead of the end-July deadline.

U.S. Economic Reports

The Commerce Department is scheduled to release its report on wholesale inventories in the month of May at 10 am ET. Wholesale inventories are expected to edge down by 0.1 percent.

Federal Reserve Vice Chair for Supervision Michael Barr is also due to participate in a panel discussion about bank supervision, regulation, and capital requirements at the Bipartisan Policy Center, in Washington, D.C. at 10 am ET.

At 11 am ET, San Francisco Federal Reserve President Mary Daly is scheduled to join David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, for a fireside chat to discuss inflation, monetary policy, and the economy.

The Federal Reserve is due to release its report on consumer credit in the month of May at 3 pm ET. Consumer credit is expected to increase by $20.5 billion.