Markets in Focus: US CPI, UBS Results, and UK Inflation in the Spotlight
Investors are waiting for proof that the Federal Reserve will begin reducing interest rates in September, so all eyes will be on the monthly release of U.S. consumer prices later in the afternoon. Inflation in the UK was comparatively low, and UBS’s quarterly profit was impressive.
The US CPI figure is highlighted
Following Tuesday’s muted announcement of U.S. producer prices, it will be the turn of consumer prices, which are expected later on Wednesday, to solidify the beginning of the Federal Reserve’s easing path next month.
According to the U.S. Labor Department, the producer price index climbed by less than predicted in July, by 0.1%, following a 0.2% increase in June. The PPI grew 2.2% in the 12 months ending in July, decreasing from a 2.7% gain in June.
According to CME’s FedWatch Tool, this data caused the probability of a significant 50 basis point drop in September to increase to 53.5% from 50% a day earlier.
In the event that the consumer price index report on Wednesday confirms generally moderate inflationary pressures, the U.S. central bank would be able to lower its policy rate from the band of 5.25% to 5.50% that it has been in for over a year.
Jerome Powell, the chair of the Federal Reserve, has underlined the importance of positive inflation statistics for a September rate reduction.
The Fed’s 2% annual objective for inflation is anticipated to be approached by inflation in July’s CPI data, according to projections. Annual core inflation is likely to drop slightly to 3.2%, the lowest level since April 2021.
headline It is anticipated that the CPI will stay at 3.0% annually.
Futures are flat before the announcement of new inflation data.
Wednesday saw little change in U.S. stock futures, regaining some of the recent gains ahead of the release of the much-anticipated monthly consumer prices report.
The Dow futures contract was 25 points, or 0.1%, higher by 04:00 ET (08:00 GMT), while the S&P 500 and Nasdaq 100 futures declined 1 point and 6 points, respectively.
Following the announcement of positive producer pricing data on Tuesday, there was a widespread rise that helped the major Wall Street indices.
The tech-heavy Nasdaq Composite surged 2.4%, the broad-based S&P 500 gained 1.7%, and the blue-chip Dow Jones Industrial Average advanced more than 400 points, or 1%.
The Federal Reserve may be able to lower interest rates in September if the July consumer price index demonstrates that inflation pressures are still sufficiently low.
In the business sector, a regulatory filing on Tuesday revealed that Intel (NASDAQ:INTC) sold its 1.18 million share interest in British semiconductor company Arm Holdings (NASDAQ:ARM) in the second quarter.
Amidst a decline in spending on conventional data center semiconductors and an increase in the use of artificial intelligence (AI) chips, the chipmaker said earlier this month that it will eliminate over 15% of its workforce and cease paying its dividend.
According to the Wall Street Journal, the world’s largest chocolate company, Mars, values packaged goods maker Kellanova (NYSE:K) at over $30 billion and is willing to pay $83.50 per share, or 12% more than Tuesday’s closing price.
UBS shows off a big Q2 net profit.
UBS (SIX:UBSG) revealed a net profit of $1.14 billion on Wednesday, easily above projections. This was part of the Swiss banking giant’s strong second-quarter performance report.
In an analyst survey conducted by the business, the net profit for the bank’s first results after UBS’s official legal merger with Credit Suisse in May was $528 million lower than expected.
According to UBS CEO Sergio Ermotti, the outcomes demonstrated the “significant progress” the bank has made since finalizing the acquisition of Credit Suisse.
“We are well positioned to meet our financial targets and return to the levels of profitability we delivered before being asked to step in and stabilize Credit Suisse,” he said in a statement.
“We are now entering the next phase of our integration, which will be critical to realize further substantial cost, capital, funding and tax benefits.”
According to UBS, the forthcoming US elections, ongoing wars, and geopolitical concerns cast a shadow over the macroeconomic picture. It anticipated that these uncertainties would continue to exist for some time to come and would probably cause more market volatility than it did in the first half of the year.
In July, UK inflation slightly increased.
Although the U.S. CPI release is the primary economic data point for the day (see above), the U.K. also released its July consumer prices report, so inflation data points are not limited to that country.
After two months at that level, British consumer price inflation climbed to 2.2% in July, above the Bank of England’s 2% objective. Despite this, the rate of inflation remains far lower than the 41-year peak of 11.1% recorded in October 2022.
This was a somewhat lower increase than the 2.3% estimate that was anticipated, and the BoE’s widely monitored annual services inflation rate dropped substantially from 5.7% in June to 5.2% in July.
This came after data that was made public on Tuesday and showed that annual pay growth, exclusive of bonuses, had fallen to 5.4%, the lowest level in almost two years.
For the first time in more than four years, the Bank of England lowered its base rate earlier this month. However, it is still unclear whether or whether the central bank will lower rates once more this year.
Crude gains following a drop in US inventory
A larger-than-expected reduction in U.S. stockpiles was indicated by industry data, which helped drive up crude prices on Wednesday. Additionally, rising geopolitical concerns in the Middle East provided support.
U.S. oil futures (WTI) increased 0.6% to $78.80 per barrel by 4:00 ET, while the Brent contract increased 0.6% to $81.16 per barrel.
The United States’ oil stockpiles decreased by 5.2 million barrels in the week ending August 10, according to data from the American Petroleum Institute. This was far less than the 2 million barrel draw that was predicted.
If official inventory data later in the day validates the reading, it indicates that demand in the largest gasoline consumer in the world remained strong as the summer’s travel-heavy season came to an end.
Increased tensions in the Middle East have also helped the price of petroleum as there are worries that a larger conflict there might cut off supplies of oil from the region, which is rich in crude.
In retaliation to the Hamas leader’s murder late last month, Iran has promised a harsh response. Israel is attacking Hamas in Gaza after the organization attacked Israel in October, though it has neither acknowledged nor denied its role.
