US open: Futures mixed as inflation fears return

US stocks point to a mixed start after US CPI shot higher to 5% YoY. Inflation fears have returned driving the rotation into value.

USA (2)

US futures

Dow futures +0.2% at 34565

S&P futures +0.1% at 4225

Nasdaq futures -0.34% at 13782

In Europe

FTSE +0.18% at 7094

Dax -0.14% at 15571

Euro Stoxx -0.17% at 4090

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Tech stocks hit by rate rise concerns

US stocks are pointing to a mixed start after inflation shot up by more than expected.

CPI jumped 5% YoY in May, ahead of the 4.2% in April and ahead of forecasts 4.8%.

Core CPI rose 3.8% YoY in May, up from 3% in April and ahead of the 3.4% forecast.

Inflation is rising rapidly as the economy reopens after the pandemic restrictions. Whilst this is supposed to be the peak in CPI, investors have been fretting that a sharp and sustained rise in inflation could prompt the Fed to slow its pace of asset purchase or even begin to signal towards a rate rise. This data is fueling those fears further and driving the rotation into value

High growth US tech stocks which are most sensitive to changes in interest rates are trading lower pre-market. The tech heavy Nasdaq is under performing its peers on Wall Street. Meanwhile value stocks most closely tied to the improving economic health of the economy are back in favor boosting the Dow Jones.

Jobless claims

Initial jobless claims fell to a fresh pandemic low last week, falling to 376,000, down from 385,000 the week before and just slightly above forecasts of 370,000. The data suggests that the recovery in the labour market continues as the economy continues re-opening.

Equities

GameStop is likely to be in focus and trades around 6% lower pre-market despite beating estimates in Q1 earnings. GME announced after the close that it intends to offer more shares and that regulators are looking into the trading of its stock.


Where next for the Dow Jones?

The index has fallen through its month old ascending trendline yesterday and trades between its 50 & 100 sma on the 4 hour chart. Buyers will be looking for a move over 34600 the 50 sma in order to target a move towards 34850 horizontal support and bring the all time high of 35000 back into play. A move below 34450 the 100 sma could support a more negative bias and help drive the price towards 34250. A break below here could spark a deeper selloff.

FX – USD edges higher, ECB keeps rates on hold

The US Dollar rises after higher than forecast inflation data driving bets of the Fed moving to tighten policy sooner.

GBP/USD is under performing its major peers as EU -UK tensions remain elevated. Talks between the two sides yesterday failed to result in a breakthrough. Instead, the EU threatened trade tariffs sending the Pound lower. Covid cases continue to rise.

EUR/USD as expected the ECB kept rates on hold and the PEPP unchanged at €1.85 trillion. The ECB sees PEPP purchases continuing to be conducted at a significantly higher pace than the start of the year. The dovish stance has been confirmed, EUR/USD was unmoved. Attention will now turn to Christine Lagarde’s press conference and the quarterly projections.

GBP/USD  -0.1% at 1.4102

EUR/USD  -0.1% at 1.2170


Oil shrugs off a rise in fuel inventories

Oil prices are edging quietly higher after recording mild losses in the previous session amid concerns over a weak start to the US summer driving season. Inventory data by the EIA for the US revealed that stockpiles fell for an 11th consecutive week. However, fuel inventories rose steeply pointing to weak consumer demand.

Even so with traffic levels on the rise, and vaccine programmes continuing at a rapid pace the disappoint has been shrugged off rapidly and the bullish uptrend remains in tact.

US crude trades +0.13% at $69.90

Brent trades +0.27% at $72.13

Learn more about trading oil here.

The complete guide to trading oil markets


Looking ahead

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