U.S. Stock Futures Climb Ahead of Key Inflation Data: What to Watch For

A Calm Start with Slight Gains

U.S. stock index futures showed modest gains on Tuesday morning, as investors braced for crucial inflation data expected later this week. At 07:34 AM EDT, Dow Jones Futures slip by 30 points, or 0.08%, S&P 500 Futures increased by 9.50 points, or 0.18%, and Nasdaq 100 Futures climbed by 56.75 points, or 0.30%. This upbeat start comes amid a period of calm trading, suggesting that market participants are cautiously optimistic ahead of the upcoming economic indicators.

Monday’s Market Volatility

The trading day on Monday was marked by choppy movements across major Wall Street indices. The blue-chip Dow Jones Industrial Average fell by 140 points, or 0.4%, while the broad-based S&P 500 ended the day flat. The tech-heavy NASDAQ Composite managed a modest gain of 0.2%. The mixed performance reflects a market that is hesitant to make significant moves before receiving fresh data that could influence future Federal Reserve decisions.

CPI and PPI Data: What to Expect

This week’s focus is on U.S. inflation readings, starting with the Producer Price Index (PPI) on Tuesday and followed by the Consumer Price Index (CPI) on Wednesday. These reports are anticipated to provide more clarity on the economic landscape and potential Federal Reserve actions.

Producer Price Index (PPI) Expectations

The PPI is expected to show a 0.2% increase for July on a month-to-month basis, translating to an annual headline rise of 2.3%, down from 2.6% in June. The core PPI, excluding food and energy, is forecasted to rise by 0.2% month-to-month, a decrease from the 0.4% increase in June. The annual core figure is expected to be 2.7%, down from 3.0%.

Consumer Price Index (CPI) Anticipations

The CPI report, set to be released on Wednesday, will further illuminate inflation trends. Investors will scrutinize these figures to gauge the likelihood of a Federal Reserve rate cut in September.

Federal Reserve’s September Rate Cut: The Big Question

With inflation data looming, traders are divided between expecting a 25 or 50 basis point cut in the Federal Reserve’s policy rate. The Fed’s decision at the end of July to maintain the rate in the 5.25%-5.50% range has left the market on edge. Any signs of cooling inflation could tilt the scales towards a more significant rate cut.

Analysts at UBS have suggested that fears of an imminent U.S. recession are overstated. They predict the Fed may cut rates by 100 basis points in the remainder of the year, double their previous forecast, to safeguard the labor market. Despite recent volatility and recession concerns, UBS argues that household finances remain strong and the economic fundamentals are solid.

Retail Earnings to Watch

As the second-quarter earnings season wraps up, attention shifts to major retailers Home Depot (NYSE:HD) and Walmart (NYSE:WMT), with their earnings reports due this week. These results will offer further insights into consumer spending trends, which are closely tied to inflation and overall economic health.

Strong consumer spending has been a key factor in U.S. inflation this year, despite the pressures from elevated interest rates. The upcoming earnings reports could provide crucial clues about future inflationary pressures and economic growth.

Crude Oil Prices: Breaking the Winning Streak

Crude oil prices have taken a dip on Tuesday, ending a five-day winning streak as traders cashed in on recent gains amid ongoing concerns about demand growth. U.S. crude futures (WTI) fell by 0.23% to $79.83 a barrel, while Brent crude dropped by 0.3% to $82.06 a barrel.

Despite recent gains fueled by heightened tensions in the Middle East, which raised fears of disrupted oil supplies, crude benchmarks have seen a 3% decline over the past month. The Organization of the Petroleum Exporting Countries (OPEC) cut its global demand forecast for 2024, the first reduction since July 2023, signaling weaker-than-expected demand in China.