OP Wire 5/15 (OP – Lite)

By Steve

Key CPI Release to Influence Fed’s Policy Path

The spotlight is on the crucial monthly U.S. consumer price report set to be released Wednesday, which is expected to have a significant impact on the Federal Reserve’s near-term policy decisions. April’s consumer price index (CPI) is anticipated to show a 0.4% increase on a month-over-month basis and a 3.4% rise from a year earlier. The core CPI, excluding volatile food and energy prices, is expected to show a 3.6% year-over-year increase, marking the smallest rise in over three years, with a monthly increase of 0.3%.

Investors have tempered their expectations for U.S. rate cuts this year due to persistent inflation, now pricing in 43 basis points of easing compared to 150 basis points anticipated at the start of 2024. Federal Reserve Chair Jerome Powell emphasized the challenge of controlling inflation in a speech at the Foreign Bankers’ Association’s Annual General Meeting in Amsterdam on Tuesday. “Inflation in Q1 was notable for the lack of further progress,” Powell said. “Confidence in inflation moving back down is lower than it was. My confidence on that is not as high as it was before.”

U.S. producer prices also increased more than expected in April, indicating that inflation remains stubbornly high early in the second quarter.

Futures Little Changed Ahead of Key CPI Release

U.S. stock futures traded mostly unchanged Wednesday as caution prevailed ahead of the key inflation data release. By 04:30 ET (08:30 GMT), Dow Jones Futures were up 10 points, or 0.1%, S&P 500 Futures were flat, and Nasdaq 100 futures fell 10 points, or 0.1%.

Wall Street indices saw gains on Tuesday despite a higher-than-expected rise in April producer prices. However, the consumer price index release is expected to have a more significant impact if it deviates from expectations.

Other economic reports due Wednesday include retail sales figures for April, the May Empire State manufacturing survey, and the housing market index. In the corporate sector, footwear retailer Boot Barn (NYSE:BOOT) dropped more than 5% premarket due to disappointing full-year guidance, while solar tracker manufacturer Nextracker (NASDAQ:NXT) gained 12% on better-than-expected revenue.

Meme Stocks Continue to Surge

Meme stocks, including GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC), continued their rally with Frankfurt-listed shares soaring Wednesday. AMC gained 32% on Wall Street Tuesday, while GameStop surged 60%. This followed cryptic social media posts from “Roaring Kitty” Keith Gill, a central figure in the 2021 meme stock frenzy, after a three-year hiatus. The posts, featuring movie clips and a comic of a man sitting up in a chair, ignited renewed interest among retail investors.

Legendary investor Bill Gross commented on the surge, saying, ““Gamestonk” is passé. What could be a better buy signal than a cartoon man sitting upright in his chair?” However, some experts remain skeptical. Cole Smead, CEO of Smead Capital Management, called the buying craze “frankly stupid” and likened it to gambling.

Cisco to Report After the Close

Cisco is set to release its latest quarterly earnings after the close of trading Wednesday. Investors will be watching how the digital communications technology conglomerate has integrated Splunk (NASDAQ:SPLK), following its acquisition of the software company in March. Analysts expect a year-over-year decline in both the top and bottom lines for Cisco’s fiscal third quarter, with challenges continuing in its campus networking business.

JPMorgan analysts forecast a low- to mid-single-digit decline in Cisco’s core business for the year, with Splunk’s consolidation driving a 3% year-over-year revenue growth in FY25. Analysts also suggest that Cisco may provide more detailed guidance during its June 4 investor day.

Crude Prices Rise on Hopes of Tighter Market

Crude oil prices rose Wednesday, driven by industry data showing a drop in U.S. inventories, boosting expectations of tighter global markets. By 03:30 ET, U.S. crude futures were up 0.7% at $78.54 a barrel, while Brent crude climbed 0.6% to $82.83 per barrel.

The American Petroleum Institute reported a 3.1 million barrel decline in U.S. oil inventories for the week ending May 10, alongside a drop in gasoline stockpiles. If confirmed by official data later Wednesday, this would suggest rising U.S. fuel demand heading into the travel-heavy summer season, potentially tightening global crude supplies despite record-high U.S. production.

Expectations of tighter North American markets were further fueled by wildfires near Fort McMurray, a major Canadian oil sands city. This optimism overshadowed the International Energy Agency’s trimmed forecast for 2024 oil demand growth, reduced by 140,000 barrels per day to 1.1 million bpd, citing weak demand in developed OECD nations.

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