4.05pm: May CPI rose at slowest pace since April 2021
US stocks finished the day higher, ahead of tomorrow’s Federal Reserve’s interest rate decision, as May’s Consumer Price Index (CPI) data rose by a smaller than expected 4% year over year.
At the close, the Dow gained 146 points to 34,212, while the S&P 500 added 30 points at 4,369 and the tech-heavy Nasdaq moved up 111 points to 13,573.
Notable movers included shares of GameStop Corp, which jumped 11% after the company’s chairman Ryan Cohen disclosed that he recently purchased about $10.8 million worth of GameStop stock.
12:08pm: Investors expect rate hike reprieve
Shortly after noon, the Dow was up 122 points, 0.4%, to 34,188, the Nasdaq Composite added 72 points, 0.5%, to 13,534 and the S&P 500 improved 24 points, 0.6%, to 4,362.
Tee market responded well to the latest CPI figures, which saw consumer prices for the 12 months ended in May rose 4%, the smallest 12-month increase since the period ending March 2021, according to the Bureau of Labor Statistics.
What's more, the prevailing sentiment is that the Federal Reserve meetings this week will end without another interest rate increase.
″[The Fed] will buy themselves the maximum amount of optionality by signaling at least one further hike by the end of 2023, aligned with market expectations, and will guide towards a ‘skip’ instead of an extended pause to sit and observe the effects of raising rates 5% since the beginning of the hiking cycle,” said Gargi Chaudhuri, Head of iShares investment strategy Americas.
11:00am: Apple downgraded by UBS
Apple Inc's growth is likely to remain under pressure due to persistently soft demand in developed markets, according to UBS, which has downgraded its rating on shares in the tech titan to 'neutral' from 'buy'.
The investment bank anticipates that iPhone sales will decrease by 1%-2% in the latter half of 2023, with procurement expected to drop by 8%.
Apple investors felt the slight, with shares down around 0.5% on Tuesday morning at just under US$183.
9:40am: Will the Fed hike or hold?
US stocks were buoyed at the open on Tuesday by the news that inflation rose at its slowest pace in more than two years last month, fuelling investors’ hopes that the Federal Reserve may finally pause its rate hike cycle.
Consumer prices for the 12 months ended in May rose 4%, the smallest 12-month increase since the period ending March 2021, according to the Bureau of Labor Statistics.
Truflation independent inflation data aggregator Oliver Rust said he believed the Fed would finally halt its rate-hiking cycle following the CPI print.
“As US inflation gets closer to the 2% target, we expect the Central Bank will finally hit the pause button on rate hikes and allow the economy to take a much-needed breather,” Rust said.
“The Central Bank will be forced to divert its mission from reducing inflation to avoiding a recession, especially with the start of the 2024 US presidential election campaign just around the corner.”
Other analysts are not as confident that a dovish pivot will play out, with Capital Economics chief North America economist Paul Ashworth pointing out that core inflation remains uncomfortably high for the Fed.
“Headline CPI inflation fell to a more than two-year low of 4% in May, thanks to favourable base effects and another sharp drop back in energy prices last month but, with core price inflation still as high as 5.3%, and core prices rising by 0.4% month-over-month, the Fed is likely to signal tomorrow that it is minded to hike interest rates at the late-July FOMC meeting,” Ashworth said.
“With employment growth still robust too, we expect a final 25bp rate hike from the Fed next month.”
Just after the opening bell in New York, the Nasdaq had added 115 points or 0.9% at 12,577 points, the S&P 500 was up 25 points or 0.6% at 4,364 points, and the Dow Jones had gained 102 points or 0.3% at 34,168 points.
8:35am: Inflation cools further
The Consumer Price Index (CPI) for May came in slightly cooler than expected, according to the latest data from the Bureau of Labor Statistics.
Prices rose 0.1% month-over-month and 4% in the 12 months ended in May, after rising 0.4% monthly and 4.9% on an annual basis in April.
Analysts had been expecting a 0.4% increase month-over-month and a 4.1% annual increase.
Shortly following the release of the data, stock futures were mixed with the Dow Jones flat, the S&P 500 up 0.1% and the Nasdaq up 0.3% in pre-market trading.
7:45am: CPI in focus
US stocks indexes are expected to edge higher at the open on Tuesday, extending their recent gains after both the S&P 500 and Nasdaq Composite each recorded their highest close since April 2022 on Monday.
Investors were showing little nerves ahead of the May US consumer price index (CPI) inflation reading, due out at 8.30am ET on Tuesday, as hopes mount that the Federal Reserve will skip a rate hike at its two-day policy meeting beginning Tuesday.
In pre-market trading, futures for the Dow Jones Industrial Average (DJIA) were up 0.03%, while those for the S&P 500 index were ahead 0.1%, and contracts for the Nasdaq Composite added 0.3%.
On Monday, the S&P 500 and Nasdaq Composite jumped 0.9% and 1.5%, respectively, to finish at their highest level in 13 months, while the DJIA added 0.5%.
Ahead of the Fed rate decision on Wednesday, attention will be on the May CPI reading which is expected to show a steady 0.4% month-over-month rise in prices, while on a yearly basis economists expect a 4.1% headline increase, down from 4.9% in April.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank commented: "Expectations are rather soft – which make them harder to beat."
She added: "One encouraging piece of data, however, is the falling inflation expectations. The latest survey from the New York Fed showed that the one-year inflation expectation further fell to 4.1%, although we saw an uptick in 3-year expectation to 3%.
"What’s interesting here is the idea that consumers get used to the idea that, yes, inflation will slow from the actual levels, but we will not return to the 2%-inflation-era anytime soon. Both the US and Europe should accept and live with inflation levels that are closer to 3-4%, than 2% and below as has been the case for the past decade. In fact, trade war with China, war in Ukraine, energy crisis, energy transition, reindustrialization and onshoring are all inflationary factors, and will make the Fed’s job of reaching a 2% inflation rather complicated. "
Ozkardeskaya concluded: "While equity traders seem optimistic about the end of the Fed tightening, bond traders are more skeptical. The US 2-year yield remains on a positive trajectory. The US sovereign bonds outlook will remain negative until a strong hint that the Fed rate hikes are over."
On the corporate front, Oracle shares jumped in after-hours trading after topping estimates for the fiscal fourth quarter with adjusted earnings of $1.67 per share on revenue of $13.84 billion.