Investors shift focus to key inflation report this week

written on August 8, 2022

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation. 

Stock futures were little changed early on Monday morning, following the S&P 500′s third straight weekly gain, as investors shifted focus to a key inflation report this week. Futures on the Dow Jones Industrial Average dipped 30 points or 0.09%. S&P 500 futures and Nasdaq 100 futures fell 0.16% and 0.09%, respectively. The Shanghai Composite rose 0.2% to above 3,230 while the Shenzhen Component edged up 0.15% to 12,288 on Monday, rising for the third straight session as Chinese trade data released over the weekend surprised markets to the upside, raising hopes for an economic rebound. 

Summary

  • S&P 500 is 13.98% above its 52-week intraday low of 3,636.87 from 17th June. 
  • Dow is 10.6% above its 52-week low intraday low of 29,653.29 from 17th June. 
  • Nasdaq is 19.8% above its 52-week intraday low of 10,565.14 from 16th June. 
  • The second-quarter earnings season is moving to its tail-end with 432 S&P 500 companies having already reported results. Among those companies, 77.5% reported earnings per shares above analysts’ expectations 
  • Oil moved higher on Monday, with WTI crude and Brent oil trading at more than $89 a barrel and $95, each, after reports that China's crude oil imports edged up in July from June's 4-year low. Last week, oil plunged near 9%, hitting its lowest level in almost 6 months, as escalating fears over a recession continued to hurt demand outlook. 
  • Nearly 70% of companies posted quarterly revenue that topped analysts’ estimates. 
  • Investors will monitor Disney’s quarterly numbers, which are earmarked for Wednesday. Palantir Technologies reports on Monday, while Ralph Lauren and Coinbase are set for Tuesday. 
  • Berkshire Hathaway reports operating earnings surge but posts big investment loss amid markets rout. 
  • A new reading for the consumer price index, slated for release on Wednesday, will give investors more clarification about the central bank’s next move at its policy meeting in September. Traders are now pricing in a higher likelihood of a 0.75 percentage point hike next month, which would be the third straight increase of that magnitude. 
  • Hong Kong is reducing the amount of time travellers will need to serve hotel quarantine, from seven days down to three, starting Friday. 
  • This week, attention will turn to the US inflation report, which is expected to show that prices rose at a softer pace, driven by a drop in gasoline costs. The headline inflation is seen rising 0.2% month-on-month, which would be the smallest monthly gain since January 2021 and result in the annual rate of inflation slowing to 8.7% from 9.1%. Still, core inflation likely rose 0.5% over the previous month, pushing the annual rate to 6.1% from 5.9%. Other first-tier releases in the US calendar include the producer price index and the University of Michigan sentiment index. Elsewhere in America, it will be interesting to follow inflation figures from Brazil and Mexico and the monetary decision from Mexico's central bank. 

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