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February 24, 2024

Investors Cautious As Key Inflation Data And Bank Earnings Loom

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Jan 10, 2024

US stock futures were muted on Wednesday morning as investors braced for key inflation data and the start of the earnings season. The Consumer Price Index (CPI) report due later today is expected to show whether inflation continued to cool in December. The data could impact the Federal Reserve’s interest rate policy going forward. Meanwhile, big banks like JPMorgan Chase and Bank of America will kick off the fourth quarter earnings season with their results on Friday.

Markets Tread Water Ahead of Vital Economic Indicators

The major stock indexes were set for a mixed open on Wednesday, with Dow futures slipping 2 points and S&P 500 futures inching up 0.1%. Nasdaq 100 futures rose 0.2%, outperforming thanks to relative strength in megacap technology names according to Ryan Detrick, chief market strategist at Carson Group.

US stock futures

US stock futures were muted as traders awaited inflation data. Image credit: Proactive Investors

With little major economic releases or earnings until later in the week, movements were muted as investors hesitated to take big positions. All eyes are on the upcoming CPI print for clues about the path of inflation and Fed policy.

Liz Ann Sonders, chief investment strategist at Charles Schwab, summarized the cautious sentiment:

A holding pattern ahead of the December CPI report feels right given heightened sensitivities to inflation trajectory.

An easing in supply chain constraints and consumer demand has brought down inflation from its peak last summer. Economists predict the headline CPI increased by 0.1% month-over-month in December. The core rate excluding food and energy is seen slowing to 0.3% from 0.2% in November.

All Eyes on Latest Inflation Figures

The inflation data could support or upend the narrative that price pressures are on a sustainable downward path. An upside surprise could dash hopes that the Fed is nearing the end of its rate hike campaign. This would likely deal a blow to risky assets like equities.

On the other hand, another month of moderating inflation would reinforce expectations of a step down to a 25 basis point rate increase at the next FOMC meeting. Stocks would likely applaud a tamer CPI print.

Charles Schwab’s Liz Ann Sonders believes financial markets may be underestimating the stickiness of inflation:

Need to see broader evidence that disinflationary process is sustainable. Market may be ahead of itself in that regard.

Beyond the inflation data, investors are gearing up for the unofficial start of earnings season on Friday with reports from several of the largest US banks. Profits and guidance from companies could provide insights into the health of the American consumer.

The early returns on Q4 results have been mixed so far. Top hedge fund manager David Tepper said in an interview, “It’s still questionable earnings…I’m not too constructive on the market right now.”

On the other hand, Ryan Detrick of Carson Group sees resilience in corporate earnings offsetting macro uncertainty:

Earnings estimate for Q4 2022 have actually gone up slightly since September showing earnings are holding up better than feared despite the uncertainties.

Cautious Trading Persists Across Global Markets

US futures weren’t the only muted market on Wednesday morning. Caution was prevalent across global equities ahead of vital economic data releases.

In Europe, the pan-European STOXX 600 slipped 0.1% in early trading. Germany’s DAX and France’s CAC 40 both traded slightly lower.

Britain’s FTSE 100 fell 0.6% as investors awaited more clarity on central bank rate hikes and inflation trends. Miners and oil stocks were among the biggest decliners as commodity prices continued their slide on demand concerns.

Markets in Asia closed broadly lower overnight. Japan’s Nikkei shed 0.2% while Hong Kong’s Hang Seng index slumped 1.3%. Chinese shares also retreated as latest economic data indicated further cooling in the world’s second-largest economy.

Oil Extends Slide as Demand Fears Resurface

Oil prices sank for a sixth consecutive session, dropping to their lowest level since before Russia’s invasion of Ukraine disrupted global energy markets.

Futures on West Texas Intermediate crude, the US oil benchmark, fell 2.1% to $74.63 a barrel ahead of the market open. Prices have now given up all their gains stemming from the OPEC+ production cuts announced last fall.

Crude oil prices over the last year

Crude oil entered a bear market, fueling demand destruction fears. Image credit: Barron’s

While low oil prices may seem like a positive for consumers, the rapid plunge is stoking worries over eroding demand as major economies face the threat of recession.

The International Energy Agency and OPEC both downgraded their oil demand forecasts for 2023 this week. Consumption is expected to contract for the first time since the initial COVID-19 outbreak now that much of Europe and China are in the grips of an economic downturn.

Adding to oil’s woes is the recent strength of the US dollar, which rose to a one-month high on increased safe haven appeal. The greenback’s gains make dollar-denominated commodities like crude more expensive for foreign buyers.

Looking Ahead – Vital Data On Tap

As seen from the cautious trading on Wednesday, investors are biding their time ahead of vital economic releases and earnings that could set the tone for asset prices in coming weeks.

Beyond the CPI and big bank results, Friday also brings the University of Michigan consumer sentiment survey. The monthly gauge of US consumers could show whether households grew more confident to start 2023 amid cooling inflation.

Additionally, Wall Street will receive critical retail sales data next week showing whether consumers maintained spending levels in December. The retail sector endured notable layoffs recently from Amazon, Walmart and others facing profit margin pressures.

While uncertain economic crosscurrents have made for choppy markets so far in 2023, Ryan Detrick of Carson Group offered an optimistic outlook in a recent tweet:

Few understand that recessions uncover the new leaders for the next bull…Patience is a virtue during times like this, as the future leaders will become obvious over the coming year.

Week Key Economic Data & Earnings Reports
January 11-13 CPI, PPI, University of Michigan consumer sentiment index, big bank earnings from JPMorgan, BofA, Wells Fargo, Citi
January 16 MLK Jr. Day market holiday
January 17-20 Retail sales, housing starts, existing home sales, Netflix, Procter & Gamble, IBM, Tesla earnings
January 23-27 FOMC meeting, US Q4 GDP first estimate, durable goods orders, new home sales, Apple, Tesla, Intel, Mastercard, Visa earnings

Table outlining vital economic data and earnings reports scheduled for release in the days ahead.

With more clarity arriving soon on consumers’ resilience, inflation trends and corporate profits, expect to see positioning shake out across asset classes. Stocks drifted on Wednesday as short-term direction relies on key inputs from this upcoming high stakes economic calendar.

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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