U.S. Stock Futures Edge Higher Amid Inflation Data Anticipation
Wall Street Outlook:
U.S. stock futures edged higher on Monday as investors awaited crucial inflation data later in the week, which could determine the near-term market direction. The Dow Jones Industrial Average posted its eighth consecutive winning session on Friday, marking its best week of the year, supported by generally positive corporate earnings. As of Friday, over 90% of S&P 500 companies had reported results, with nearly 80% surpassing forecasts, according to FactSet.
Despite this positive trend, gains may be limited as investors await April’s consumer price data on Wednesday. Analysts predict a year-over-year inflation increase of 3.6%, the smallest rise in over three years. A higher-than-expected reading could eliminate hopes for rate cuts this year, potentially reigniting market volatility. Additionally, several Federal Reserve speakers, including Chair Jerome Powell, are scheduled to speak this week.
Arm Holdings:
Arm Holdings (NASDAQ:ARM) announced plans to establish an artificial intelligence chip division, reported Nikkei Asia. The UK-based chip designer aims to build a prototype by spring 2025, with mass production expected in autumn 2025 by contract manufacturers. Acquired by SoftBank in 2016 for $32 billion and listed on Nasdaq last year, Arm’s initial development costs for the AI chips will be significant. Arm’s AI chip business could eventually be spun off under SoftBank.
Arm’s shares have surged nearly 45% this year, driven by the AI computing boom, with a market capitalization exceeding $113 billion. SoftBank Group reported a quarterly profit on Monday, reducing its annual loss due to valuation gains from the AI hype.
Chinese Consumer Inflation:
China’s consumer price index (CPI) inflation rose for the third consecutive month in April, indicating improving domestic demand in the world’s second-largest economy. CPI inflation grew 0.3% year-on-year, exceeding expectations of 0.1%, and improved from March’s 0.1% rise. Month-on-month, CPI inflation increased by 0.1%, reversing a 1% decline in the previous month.
However, producer price index (PPI) inflation remained weak, falling 2.5% in April for the 19th consecutive month, worse than the expected 2.3% drop but better than the prior month’s 2.8% decline. This data follows stronger-than-expected Chinese import figures, suggesting local demand is bolstered by continued policy support and stimulus measures.
New China Tariffs Expected:
The Biden administration may announce new tariffs on Chinese goods as soon as this week, focusing on strategic and national security industries. The announcement, expected Tuesday, will likely maintain existing tariffs from the Trump era while adding new ones on semiconductors, solar equipment, and electric vehicles (EVs). The Wall Street Journal reported that EV tariffs could quadruple, potentially inviting retaliation from China amid heightened tensions between the two largest economies.
Crude Prices:
Crude prices edged higher on Friday, supported by mixed inflation data from China, the world’s largest crude importer, and cautious sentiment ahead of key U.S. inflation readings this week. By 04:00 ET, U.S. crude futures were up 0.4% at $78.54 a barrel, while Brent crude climbed 0.4% to $83.08 per barrel.
China’s PPI contraction suggested sluggish business demand, but rising consumer prices indicated a rebound in consumer demand. Crude prices were recovering from mild losses the previous week, driven by weak U.S. consumer confidence and high inflation projections, which raised concerns about an economic slowdown in the world’s largest fuel consumer. Trading ranges are expected to remain tight ahead of the U.S. inflation data, as hotter-than-expected numbers could dampen hopes for interest rate cuts, potentially slowing growth and reducing energy use.
SPY/SPX- Last week bullish change in character was the focus and that the main watch was “…specifically how price trades versus the 5150 level of interest. If buyers can continue to show acceptance above this level, price can show a retest of the 5195 (prior breakdown point), with potential continuation into 5230 and 5270.”
Unsurprisingly, the weekly high was marked at 5264 – Just 6 points shy of the final upside weekly level of interest shared last week.
Buyers showed their dominance all week, does that continue for this week?
The main watch will be how price trades versus 5230, which was last week’s near-term range breakout point.
Holding above 5230 can see price targeting 5270, 5300, and 5333 (all-time highs). With a break and hold below 5230, price can target 5195, 5175, and 5150.
Upside levels of interest: 5270, 5300, 5333
Downside levels of interest: 5195, 5175, 5150
Notable Economic Data
- All week: Fed speak
- Tuesday: PPI, Powell Speech
- Wednesday: CPI
- Thursday: Jobless Claims
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