4:15pm: Stocks take a beating ahead of May price index report
The Dow closed Thursday down 638 points, nearly 2%, at 32,273, the Nasdaq lost 332 points, 2.8%, to 11,754, and the S&P 500 declined 98 points, 2.4%, to 4,018.
Investors are looking ahead to the Friday release of the May consumer price index report, which could help illuminate what the Fed will do in terms of rate hikes going forward.
“The fact that people have literally been talking about this report for the last several days illustrates how much of an issue inflation has become for the market over the last six months since Fed Chair Powell first started to take a more hawkish approach to inflation,” Bespoke Investment Group said in a note to clients, as reported by CNBC.
12.05pm: Wall Street losses continue
US stocks remained in the red at noon as investors eye key CPI data due to be released tomorrow.
At midday, the Dow was down 120 points at 32,791 points.
The S&P 500 had slipped 19 points at 4,097 points, with the Nasdaq dipping 61 points at 12,026 points.
Plant-based food producer Beyond Meat Inc (NASDAQ:BYND) was down about 8% at midday following the news it is partnering with Atlanta-based restaurant chain Slutty Vegan.
Meanwhile, electric carmaker Tesla Inc (NASDAQ:TSLA) managed to hold onto gains it made earlier in the day after it was upgraded to ‘Buy’ status by UBS, up about 2.5% at noon.
IG chief market analyst Chris Beauchamp noted Wall Street was struggling ahead of Friday’s inflation report.
“With the gloomy expectations of growth spreading to include the eurozone, it seems only a matter of time before US stocks take a new leg to the downside,” Beauchamp said.
OANDA senior market analyst Craig Erlam noted the ECB’s shift was yet another hawkish move, albeit one that was largely expected.
“The central bank went a little further, especially in laying out the terms in which it would super-size hikes from September which was interesting,” he said.
Erlam noted that gold continued to fluctuate around $1,850, with one eye clearly on the upcoming US inflation data and the Fed meeting next week.
“The yellow metal has been choppy at times but ultimately hasn't moved in any considerable way, with $1,830 offering support below and $1,870 resistance above,” he said.
“Perhaps the CPI data will be the catalyst for the next explosive move.”
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9.35am: Wall Street reacts to employment data
Despite being expected to open slightly higher on Thursday, US stocks dipped at the open as investors weigh up the latest US jobs data amid confirmation the European Central Bank intends to continue raising interest rates in a bid to rein in inflation.
At the open, the Dow had shed 149 points at 32,762 points.
The S&P 500 was down 18 points at 4,097 points and the Nasdaq had lost 61 points at 12,025 points.
Electric carmaker Tesla Inc (NASDAQ:TSLA) was up about 3% at the open after the company was upgraded to a ‘Buy’ rating by UBS. The analyst report noted that the stock market slide has provided an attractive entry point for the high-growth business which is “best positioned to become one of the top-three global car makers by 2030.”
Meanwhile, the latest US jobs data shows unemployment claims have risen to 229,000 from 202,000. This was above the consensus analyst expectation of 206,000, a potential sign of stress in the labor market.
Pantheon Macroeconomics chief economist Ian Shepherdson noted that unemployment claims were trending higher, but this was not alarming.
“Last week’s drop always looked unsustainable and the seasonals pointed clearly to a rebound this week,” he said. “The current four-week average is 215,000.”
He said widespread anecdotal reports of increased layoffs pointed to a rising trend in claims over the summer, but that it was expected the numbers would remain low by historical standards.
“Next week’s reading likely will be very close to this week’s, but claims should then drop slightly until the end of the month,” Shepherdson said.
“At that point, the annual period of volatility due to the auto retooling shutdowns will obscure the trend for a few weeks, until early August.”
This comes as the ECB confirmed that it intends to raise its key interest rates by 25 basis points at its July meeting.
ZEDRA global head of fiduciary investment services Toby Sturgeon said, with inflation in the eurozone four times higher than the 2% target, it was no surprise to see the ECB maintain its key rates at current levels.
“Markets reacted positively with the Euro appreciating in the immediate aftermath of the decision,” Sturgeon said.
He noted that it seemed increasingly likely there would be further 25 basis point rate increases at future meetings.
6.30am: Inflation the key
US markets were expected to open slightly higher on Thursday, stabilising after Wednesday's falls as investors await key inflation data due out data on Friday.
Investors worry that inflation will be hard to control despite the US Fed’s aggressive path of interest rate hikes, raising fears that the world’s biggest economy may slide into a recession. These factors are likely to keep trading choppy.
Futures for the Dow Jones Industrial Average gained 0.3 % in pre-market trading, while those for the broader S&P 500 index rose 0.3%, and contracts for the Nasdaq-100 were up 0.4%.
As the yield on the 10-year US treasuries remains above the key 3.0% level and oil prices continue to stay elevated, investors appear to be risk averse.
“In terms of their concerns, the very same issues, such as slower economic growth and higher inflation, are weighing their decision when it comes to back riskier assets,” said Naeem Aslam, chief market analyst at avatrade.com.
US CPI inflation data, scheduled for release on Friday, will be key as markets look for signs that price pressures have already peaked. Ahead of that initial weekly jobless claims will be scrutinised today.
The US Fed’s June meeting comes next week and the headline inflation rate is likely to be a factor in the rate verdict. The Fed is widely expected to hike interest rates by another 50 basis points and follow that up with a similar increase the following month.
In energy markets, WTI crude oil futures eased 0.1 % to $122.01 a barrel and Brent crude futures were flat at $123.61
Aslam noted that investors are watching to see what will happen to oil supply when economic activity in China resumes to normal levels: “This is the message that we also heard from some members of the OPEC yesterday, and this remains a wild card for the oil market. Due to this, traders and investors believe that it is likely that we may see oil prices remain anchored for an extended period of time.”
Elsewhere, the European Central Bank’s rate decision this morning will also be closely watched.
“There is no doubt that there is tremendous pressure on the President of the European Central Bank, Christine Lagarde, to adjust the monetary policy of the Euro zone as inflation is running red hot,” added Aslam.
Contact the author at jon.hopkins@proactiveinvestors.com