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Beyond the Numbers

Troubling Inflation Data May Weigh On Wall Street
5/11/2022 8:51 AM

The major U.S. index futures have turned negative following the release of highly anticipated inflation data and are currently pointing to a lower open on Wednesday.

The downturn by the futures came after the Labor Department released a report showing the annual rate of consumer price growth slowed by less than expected.

While the report showed the annual rate of consumer price growth slowed to 8.3 percent in April from a 40-year high of 8.5 percent in March, economists had expected the pace of growth to slow to 8.1 percent.

The annual rate of growth in core consumer prices also slowed to 6.2 percent in April from 6.5 percent in March, although the rate was expected to decelerate to 6.0 percent.

On a monthly basis, the Labor Department said its consumer price index rose by 0.3 percent in April after surging by 1.2 percent in March. Economists had expected prices to edge up by 0.2 percent.

Core consumer prices, which exclude food and energy prices, climbed by 0.6 percent in April after rising by 0.3 percent in March. Core prices were expected to increase by 0.4 percent.

The data may add to recent concerns the Federal Reserve will raise interest rates more aggressively in an effort to bring inflation down at a faster rate.

Traders have recently expressed concerns more aggressive moves by the Fed and other central banks could lead to a period of stagflation or an outright recession.

After moving sharply lower for three straight sessions, stocks went on a rollercoaster ride over the course of the trading day on Tuesday. The major averages swung wildly back and forth across the unchanged line before ending the session mixed.

The tech-heavy Nasdaq jumped 114.42 points or 1 percent to 11,737.67 and the S&P 500 rose 9.81 points or 0.3 percent to 4,001.05, while the narrower Dow fell 84.96 points or 0.3 percent to 32,160.74, ending the session at its lowest closing level in over a year.

The volatility on the day came as traders continued to debate whether the markets have reached their bottom following the recent sell-off.

Bargain hunting contributed to early strength on Wall Street, as some traders looked to pick up stocks at reduced levels.

Buying interest waned over the course of the morning, however, as traders remain wary about inflation, higher interest rates and the outlook for the global economy.

Stocks continued to fluctuate over the course of the session as traders looked ahead to the release of key inflation data in the coming days.

The Labor Department is due to release its report on consumer price inflation on Wednesday, with the annual rate of price growth expected to slow to 8.1 percent in April from 8.5 percent in March.

The latest snapshot of inflation could impact expectations regarding how aggressively the Federal Reserve plans to raise interest rates.

Biotechnology stocks showed a substantial rebound following recent weakness, with the NYSE Arca Biotechnology Index surging by 3.3 percent after ending the previous session at its lowest closing level in over two years.

Bargain hunting also contributed to a bounceback by semiconductor stocks, resulting in a 2.5 percent jump by the Philadelphia Semiconductor Index. The index also ended Monday's trading at a two-year closing low.

Meanwhile, tobacco stocks showed a significant move to the downside on the day, dragging the NYSE Arca Tobacco Index down by 3.5 percent to its lowest closing level in well over a year.

Interest rate-sensitive commercial real estate, housing and utilities stocks also came under pressure along with telecom and banking stocks.

Commodity, Currency Markets

Crude oil futures are surging $3.83 to $103.59 a barrel after tumbling $3.33 to $99.76 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,844.60, up $3.60 compared to the previous session’s close of $1,841. On Tuesday, gold slid $17.60.

On the currency front, the U.S. dollar is trading at 130.55 yen compared to the 130.45 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0522 compared to yesterday’s $1.0529.

Asia

Asian stocks ended mixed on Wednesday, with Chinese and Hong Kong stocks rising after China's securities watchdog pledged a slew of measures to shore up confidence in the region's worst performing stock market.

The dollar was on the backfoot and U.S. Treasury yields remained sidelined, while gold attempted a recovery from a three-month low ahead of U.S. inflation data due later in the day.

Oil prices rose about 2 percent in Asian trading after two days of steep losses amid uncertainty over a Russian energy embargo by the EU and worries about prolonged COVID lockdowns in Shanghai.

China's Shanghai Composite Index climbed 0.8 percent to 3,058.70 amid signs of declining virus cases on the mainland and expectations that authorities will opt for more stimulus spending to counter the impact of shutdowns in many major cities.

Hong Kong's Hang Seng Index jumped 1 percent to 19,824.57 after the release of mixed Chinese inflation data. China's consumer inflation edged up in April amid lockdowns, while factory inflation eased to the slowest in a year, data showed earlier in the day.

Japan's Nikkei 225 Index ended a choppy session 0.2 percent higher at 26,213.64 as investors scooped up companies with a positive outlook. Toyota Motor plunged 4.4 percent after warning that "unprecedented" hikes in raw materials and logistics costs could slice a fifth off its full-year profit.

Sony Group rallied 2.1 percent after its operating profit more than doubled in the fourth quarter. Nintendo gained 3.3 percent on stock-split news. Yokogawa Electric soared 2.8 percent after posting a 10 percent rise in its annual net profit.

Australian markets eked out modest gains, with mining and healthcare stocks leading the advance. Banks led losses, with NAB tumbling 3.9 percent on going ex-dividend. The benchmark S&P/ASX 200 Index inched up 0.2 percent to settle at 7,064.70.

Biopharmaceutical firm CSL rose 2.1 percent after a favorable court ruling banning plasma donations by Mexican nationals entering the country on a B1/B2 visa.

New Zealand shares ended little changed with a positive bias after Prime Minister Jacinda Ardern said the country would fully reopen its international borders from end-July.

Seoul stocks extended losses for the seventh day running on concerns over high inflation and a global economic downturn.

The Kospi slipped 0.2 percent to 2,592.27, dragged down by financials. Leading container shipper HMM jumped 3.7 percent and CJ Logistics surged 4.5 percent.

Europe

European stocks have risen on Wednesday as virus cases fall in China and the country's securities regulator pledged action to shore up region's worst-performing stock market.

German consumer price inflation rose to 7.4 percent in April from 7.3 percent in March, final data from Destatis showed earlier in the day.

The inflation rate hit an all-time high since German reunification and also came in line with the flash estimate published on April 28.

While the U.K.’s FTSE 100 Index has climbed by 0.8 percent, the French CAC 40 Index is up by 1.1 percent and the German DAX Index is up by 1.3 percent.

Italian tire maker Pirelli has moved to the upside after raising its full-year revenue outlook.

Swedish Match has soared after Marlboro-maker Philip Morris International (PM) confirmed it was in talks to buy the Swedish firm.

ITV has also jumped in London after the broadcaster delivered another strong quarter amid robust operational and financial performance.

Travel and tourism company TUI AG has also surged after saying it expects to return to a profit this year.

German industrial heavyweight Thyssenkrupp has also spiked after raising its outlook for sales and operating profit for 2022.

Insurer Allianz has also rallied after it added another €1.9 billion to provisions against its imploded Structured Alpha hedge fund.

Meanwhile, funeral-related service provider Dignity has plunged after posting a decline in first quarter earnings and revenue.

French train maker Alstom has also slumped despite reporting annual operating profit above expectations.

Agriculture and pharmaceutical firm Bayer has also tumbled on reports the Biden administration asked the U.S. Supreme Court not to hear the company's bid to reject customers' claims that its Roundup weedkiller causes cancer.

U.S. Economic Reports

After report a spike in U.S. consumer prices in the previous month, the Labor Department released a report on Wednesday showing a relatively modest increase in consumer prices in the month of April.

The Labor Department said its consumer price index rose by 0.3 percent in April after surging by 1.2 percent in March. Economists had expected prices to edge up by 0.2 percent.

Meanwhile, the report showed core consumer prices, which exclude food and energy prices, climbed by 0.6 percent in April after rising by 0.3 percent in March. Core prices were expected to increase by 0.4 percent.

The annual rate of growth in consumer prices slowed to 8.3 percent in April from 8.5 percent in March, while the annual rate of growth in core prices slowed to 6.2 percent from 6.5 percent.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended May 6th.

Crude oil inventories are expected to decrease by 1.2 million barrels after rising by 1.3 million barrels in the previous week.

Atlanta Federal Reserve President Raphael Bostic is due to provide An Update from the Atlanta Fed: Economic Outlook and Monetary Policy and participate in a moderated conversation before the World Affairs Council of Jacksonville at 12 pm ET.

At 1 pm ET, the Treasury Department is scheduled to announce the results of this month’s auction of $36 billion worth of ten-year notes.

Stocks In Focus

Shares of The RealReal (REAL) are moving sharply higher in pre-market trading after the seller of secondhand luxury goods reported better than expected first quarter revenues.

Tax preparation company H&R Block (HRB) may also move to the upside after reporting fiscal third quarter results that beat expectations on both the top and bottom lines and raising its full-year guidance.

On the other hand, shares of Unity Software (U) are seeing substantial pre-market weakness after the video game software developer reported weaker than expected first quarter sales and provided a disappointing revenue forecast.

Cryptocurrency exchange operator Coinbase (COIN) may also come under pressure after reporting an unexpected quarterly loss.
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