US open: Stocks tumble as inflation unexpectedly rises

US futures

Dow futures -0.8% at 32000

S&P futures -1% at 3979

Nasdaq futures -1.23% at 12113

In Europe

FTSE -1.736% at 7385

Dax -1.1% at 14036

Euro Stoxx -1.4% at 3640

 

CPI rises, core CPI falls less than expected

After steep losses in yesterday, stocks are in freefall today after inflation unexpectedly rose in May. CPI came in at 8.6% YoY, up from 8.3% in April and defying expectations of 8.3%. Core inflation fell to 6% from 6.2% but was still above forecasts of 5.9%.

Following the data, stocks, particularly tech stocks tanked lower and the USD moved higher. The market movements suggest that investors expect the Fed to act more aggressively to bring inflation down.

This was not the result that the market was looking for and the idea of passing peak inflation remains elusive for another month. It is looking like inflation will remain steady around these elevated levels before we start to see any significant fall. Given the high that commodity prices, particularly in the energy complex, continue to rise, perhaps this isn’t that unsurprising.

The data comes after indices sold off sharply yesterday after the ECB signaled that it will start hiking interest rates next month with 25 basis points but could raise rates by 50 basis points in September. The RBA surprised the market with a 50-basis point hike earlier in the week. Central banks are prepared to act aggressively to rein in inflation.

The Michigan consumer confidence data is also scheduled for later today and will provide insight into how the consumer is holding up as inflation remains stubbornly high. Signs that the consumer is struggling could unnerve the markets.

In corporate news:

DocuSign falls 25% pre-market to a 32-month low after missing quarterly earnings expectations and lowering its outlook. The firm had previously warned that the return to pre-COVID working conditions could cut its business.

 

Where next for the S&P?

The S&P 500 has broken out of its recent range. The price broke below support at 4070, the weekly low and the 20 sma, which combined with the RSI heading lower suggest that there could be more downside to come. A break-through support at 4000 the psychological level could lead to a deeper selloff towards 3865 the May 12 low and 3810 the 2022 low. It would take a move over 4190/4200 the June high 50 sma to create a higher high and rise towards 4300 the May high.

FX markets – USD rises, EUR falls

USD is climbing higher following the hotter than expected inflation data. The data fueled bets that the Fed could go harder and faster on raising rates.

EUR/USD is extending losses after yesterday’s ECB rate announcement. The central bank slashed the bloc’s growth outlook and raised its inflation forecast. Today the Bundesbank cut Germany’s GDP outlook and raised its inflation forecast. There are growing concerns over fragmentation within the region.

GBP/USD is falling for a third straight session amid growing concerns of rising inflation and slowing growth. The BoE/Ipsos latest quarterly survey revealed that the public sees inflation rising to 4.6% over the next 12 months, up from 4.3% expected in February’s survey. The pound was unimpressed by PM Boris Johnson’s comments that he will cut taxes sooner rather than later to help households struggling in the cost of living crisis.

GBP/USD  -0.4% at 1.2440

EUR/USD  -0.27% at 1.0595

Oil set for 7^th weekly gain

Oil prices are on the rise, with Brent looking at a fourth straight week of gain whilst WTI crude oil is set for the seventh straight week of gains. The black stuff has rallied over 20% since mid-April, taking the price to three-month highs on tight supply and rising US demand, which is overshadowing COVID concerns ion China.

The peak summer driving season in the UK has seen gasoline stockpiles fall by more than expected and petrol prices reach $5 a gallon.

In addition to the usual Russia, tight supply story, concerns of reduced supply in Norway were also lifting the price. Workers at Norwegian Oil & Gas Association were threatening to go on strike in pay negotiations fail.

Oil prices had started the day around $1 lower after fresh lockdown restrictions in Shanghai owing to more COVID. China’s crude oil imports were up some 12% yoy, but this was when they were already low.

 

WTI crude trades +0.7% at $120.34

Brent trades +0.7% at $122.9

 

Looking ahead

18:00 Baker Hughes rig count

US futures

Dow futures -0.8% at 32000

S&P futures -1% at 3979

Nasdaq futures -1.23% at 12113

In Europe

FTSE -1.736% at 7385

Dax -1.1% at 14036

Euro Stoxx -1.4% at 3640

Learn more about trading indices

CPI rises, core CPI falls less than expected

After steep losses in yesterday, stocks are in freefall today after inflation unexpectedly rose in May. CPI came in at 8.6% YoY, up from 8.3% in April and defying expectations of 8.3%. Core inflation fell to 6% from 6.2% but was still above forecasts of 5.9%.

Following the data, stocks, particularly tech stocks tanked lower and the USD moved higher. The market movements suggest that investors expect the Fed to act more aggressively to bring inflation down.

This was not the result that the market was looking for and the idea of passing peak inflation remains elusive for another month. It is looking like inflation will remain steady around these elevated levels before we start to see any significant fall. Given the high that commodity prices, particularly in the energy complex, continue to rise, perhaps this isn’t that unsurprising.

The data comes after indices sold off sharply yesterday after the ECB signaled that it will start hiking interest rates next month with 25 basis points but could raise rates by 50 basis points in September. The RBA surprised the market with a 50-basis point hike earlier in the week. Central banks are prepared to act aggressively to rein in inflation.

The Michigan consumer confidence data is also scheduled for later today and will provide insight into how the consumer is holding up as inflation remains stubbornly high. Signs that the consumer is struggling could unnerve the markets.

In corporate news:

DocuSign falls 25% pre-market to a 32-month low after missing quarterly earnings expectations and lowering its outlook. The firm had previously warned that the return to pre-COVID working conditions could cut its business.

Read more about stocks to watch

Where next for the S&P?

The S&P 500 has broken out of its recent range. The price broke below support at 4070, the weekly low and the 20 sma, which combined with the RSI heading lower suggest that there could be more downside to come. A break-through support at 4000 the psychological level could lead to a deeper selloff towards 3865 the May 12 low and 3810 the 2022 low. It would take a move over 4190/4200 the June high 50 sma to create a higher high and rise towards 4300 the May high.

FX markets – USD rises, EUR falls

USD is climbing higher following the hotter than expected inflation data. The data fueled bets that the Fed could go harder and faster on raising rates.

EUR/USD is extending losses after yesterday’s ECB rate announcement. The central bank slashed the bloc’s growth outlook and raised its inflation forecast. Today the Bundesbank cut Germany’s GDP outlook and raised its inflation forecast. There are growing concerns over fragmentation within the region.

GBP/USD is falling for a third straight session amid growing concerns of rising inflation and slowing growth. The BoE/Ipsos latest quarterly survey revealed that the public sees inflation rising to 4.6% over the next 12 months, up from 4.3% expected in February’s survey. The pound was unimpressed by PM Boris Johnson’s comments that he will cut taxes sooner rather than later to help households struggling in the cost of living crisis.

GBP/USD  -0.4% at 1.2440

EUR/USD  -0.27% at 1.0595

Oil set for 7^th weekly gain

Oil prices are on the rise, with Brent looking at a fourth straight week of gain whilst WTI crude oil is set for the seventh straight week of gains. The black stuff has rallied over 20% since mid-April, taking the price to three-month highs on tight supply and rising US demand, which is overshadowing COVID concerns ion China.

The peak summer driving season in the UK has seen gasoline stockpiles fall by more than expected and petrol prices reach $5 a gallon.

In addition to the usual Russia, tight supply story, concerns of reduced supply in Norway were also lifting the price. Workers at Norwegian Oil & Gas Association were threatening to go on strike in pay negotiations fail.

Oil prices had started the day around $1 lower after fresh lockdown restrictions in Shanghai owing to more COVID. China’s crude oil imports were up some 12% yoy, but this was when they were already low.

 

WTI crude trades +0.7% at $120.34

Brent trades +0.7% at $122.9

Learn more about trading oil here.

Looking ahead

18:00 Baker Hughes rig count

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