May 24, 2024

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US futures are heading lower as another inflation test awaits

US futures are heading lower as another inflation test awaits

US stocks are poised for further losses on Thursday as investors brace for another major inflation report after a surprise rise in consumer prices dampened bets on interest rate cuts.

Dow Jones Industrial Average (^DJI) and S&P 500 (^GSPC) futures fell about 0.3%, after a rout that saw the metrics fall about 1%. Contracts tied to the tech-heavy Nasdaq 100 (^NDX) index fell about 0.2%.

Meanwhile, the 10-year Treasury yield (^TNX) was trading at around 4.55%, holding steady after rising to touch its highest level since November on Wednesday.

Stocks fell and bond yields rose after a better-than-expected March CPI report prompted investors to reevaluate expectations about Federal Reserve policy. The market is now pricing in just two rate cuts in 2024, with these coming later in the year than expected. A few analysts believe cuts or even higher interest rates may not be possible, depending on how the economic data shapes up.

Read more: What the Fed's interest rate decision means for bank accounts, CDs, loans and credit cards.

The focus now is on the Producer Price Index reading scheduled for 8:30 a.m. ET to see if wholesale inflation will also prove another sticking point in the Fed's mission to calm price pressures.

High oil prices returned to the forefront amid growing concerns about a possible attack on Israel by Iranian forces. Crude oil futures fell but remained near six-month highs, with WTI (CL=F) trading just below $86 per barrel, while Brent (BZ=F) remained above $90.

The European Central Bank's interest rate decision on Thursday morning could also help set direction, after the US inflation shock eroded hopes for a rate cut in June.

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Against this backdrop, there are hopes that Q1 corporate results will provide momentum for stocks, given there are limited signs that higher borrowing costs are slowing earnings. As reports pour in, investors are gearing up for quarterly updates from some of the biggest US banks, including JPMorgan, to start the season in earnest on Friday.

He lives2 updates

  • Read Amazon's shareholder letter to Nvidia

    The last thing Nvidia (NVDA) bulls watching their favorite stock enter correction territory this week want is Amazon (AMZN) CEO Andy Jassy's annual shareholder letter, which dropped this morning.

    I found Jassy's comments about Amazon building its own AI chips very fascinating.

    “To date, almost all of the leading core models have been trained on Nvidia chips, and we continue to offer the largest set of Nvidia instances of any provider. However, Supply was scarce and cost remained an issue As customers expand the scope of their models and applications. Customers have asked us to push the boundaries in terms of performance and price of AI chips,just as we did with Graviton for generalized CPU chips. as a result of, We've built custom AI training chips (called Trainium) and inference chips (called Inferentia). In 2023, we announced the second versions of the Trainium and Inferentia chips, both of which feature significantly higher price performance than the first versions and other alternatives. Last fall, leading foundation modeling company Anthropic announced that it would use Trainium and Inferentia to build, train, and deploy future foundation models. We already have several customers using our AI chipsincluding Anthropic, Airbnb, Hugging Face, Qualtrics, Ricoh, and Snap.

    Jassy's very long reading can be found here here.

  • The day after the CPI sell-off

    Yesterday was one of those shocking moments in the markets.

    We've all been through worse sessions for stocks and seen more eye-opening economic reports, so it's not that shocking in this context. Investors were surprised by the CPI inflation report, and sold stocks because everyone was selling and saying to sell.

    Some calm has returned to the markets this morning, but futures remain under pressure and tension is in the air ahead of the PPI report.

    A new survey of US investors from JPMorgan also did not boost sentiment on the Street. You can see below that investor appetite for owning stocks has fallen sharply as interest rate cut hopes have subsided.

    Less appetite for owning stocks here.Less appetite for owning stocks here.

    Less appetite for owning stocks here. (JP Morgan)