U.S. stock futures point higher after May inflation data meets forecasts

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U.S. stock index futures added to modest gains Tuesday after inflation data reinforceD expectations the Federal Reserve will refrain from raising interest rates on Wednesday.

Earlier, futures were buoyed after China’s central bank eased monetary policy.

What’s happening

  • Dow Jones Industrial Average futures YM00 rose 115 points, or 0.3%, to 34,504.

  • S&P 500 futures
    ES00
    were up 23.75 points, or 0.5%, to 4,411.75.

  • Nasdaq 100 futures
    NQ00
    advanced 128 points, or 0.9%, to 15,114.75.

On Monday, the S&P 500
SPX
and Nasdaq Composite
COMP
saw their highest close since April 2022, while the Dow
DJIA
also advanced.

What’s driving markets

The consumer price index rose 0.1% in May, with the year-over-year rate of inflation slowing to 4% from 4.9% in April, the lowest level since March 2021.

The so-called core rate of inflation that omits food and energy rose a stiffer 0.4%. Wall Street had forecast a 0.4% gain. The increase in the core rate over the past 12 months slipped to 5.3% from 5.5%, also the smallest gain since the fall of 2021. The headline and core readings were all in line with the average forecasts produced by a survey of economists by The Wall Street Journal.

The Federal Reserve views the core rate as a better predictor of inflation trends.

Such a decline in price pressures could help the Federal Reserve leave interest rates unchanged after its policy meeting Wednesday, a scenario that has contributed to a sturdy equity market rally of late.

“The CPI data has shown clearly that the Fed needs to take summer off now with respect to their monetary policy…In simple terms, it seems like there is less wood to chop for the Fed as inflation begins to cool down,” said Naeem Aslam, chief investment officer at Zaye Capital Markets.

After the data, fed-funds futures showed traders priced in a 100% expectation policy makers will leave rates unchanged on Wednesday. The market had priced in a 79.1% probability on Monday.

Earlier, U.S. stock index futures were lifted after China eased monetary policy amid reports of more stimulus to come.

Hong Kong’s Hang Seng index
HK:HSI
climbed 0.6%, Japan’s Nikkei 225
JP:NIK
rose 1.8% to hit a fresh 33-year high, while industrial commodities like oil
CL
and copper
HG00
gained ground on hopes of more demand from the world’s second-biggest economy.

The S&P 500 is up 12.5% over the past three months, taking its relative strength index, a momentum gauge, to the overbought threshold of 70.

Some market darlings have enjoyed even greater price surges. Shares of Tesla Inc.
TSLA,
the sixth biggest S&P 500 constituent by market capitalization, are up 43% over the past three months, and have gained 103% for the year to date after claiming on Monday a record 12th successive day of gains.

Such bullishness may have bred injudicious calm. The CBOE VIX index
VIX,
a gauge of expected S&P 500 volatility that usually rises at times of market stress, is around 15, well below its long-run average of 20.

“There are diverging opinions about what happens next. Some investors think that the Big Tech led equity rally should continue with the rest of the market due to catch up their technology peers. Some others think that the S&P 500’s fresh bull market is just an illusion and doesn’t mean that the bear market is over,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“The S&P 500 is now approaching overbought conditions, which will bring some investors to take their profit and walk away. Big Tech, which saw the strongest rally this year, is potentially where the profit taking will be happening,” she added.

Companies in focus



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