June CPI release, PepsiCo earnings, UK economic growth - what's moving markets

Investing.com -- Wall Street looks set to start the day slightly lower as investors await the release of the latest inflation data, which could guide expectations of interest rate cuts later this year. The new earnings season has nearly arrived, while the U.K. economy returned to growth in May.

1. June CPI to cement September easing?

The key monthly U.S. consumer inflation report is due later in the session, and is expected to show inflation easing and pave the way for rate cuts in September.

On an annual basis U.S. June headline CPI is expected to slow to 3.1%, while core CPI is seen steady month-on-month at 0.2%.

U.S. Federal Reserve Chair Jerome Powell told lawmakers on Capitol Hill on Wednesday that "more good data" would build the case for the U.S. central bank to cut interest rates.

Powell was testifying in front of the House of Representatives on the second day of his semi-annual Congressional testimony, after speaking to the Senate Banking Committee on Tuesday.

As it stands, Fed funds futures are showing a 73% chance that the central bank eases at its September meeting, according to CME FedWatch, and inflation meeting forecasts will likely cement those expectations.

But a surprise spike could further jolt projections, rattle the equity markets and boost the U.S. dollar.

2. Futures edge lower ahead of key inflation release

U.S. stock futures edged lower Thursday, consolidating from record levels, ahead of the release of key inflation data, which could solidify expectations for an interest rate cut in September.

By 04:00 ET (08:00 GMT), the Dow futures contract was 22 points, or 0.1%, lower, S&P 500 futures dropped 3 points, or 0.1%, and Nasdaq 100 futures fell by 15 points, or 0.1%.

The broad-based S&P 500 index and the tech-heavy Nasdaq Composite once more closed at fresh record highs on Wednesday, after Fed head Jerome Powell stated that the central bank did not need to see inflation falling below 2% to begin cutting interest rates.

This prompted hope that the central bank’s next meeting in September will see the start of a rate-cutting cycle.

This brings the June reading of the consumer price index, due later in the session, firmly into focus, with investors looking for an easing for confirmation.

In the corporate sector, Costco Wholesale (NASDAQ:COST) stock rose over 2% premarket after announcing its first membership rate increase since 2017, while WD-40 Company (NASDAQ:WDFC) added 12% premarket on the back of its solid fiscal third quarter report.

3. Quarterly earnings season set to start

The new U.S. quarterly earnings season starts in earnest on Friday, with results scheduled from a number of the nation’s major banking institutions.

Ahead of that soft drinks giant PepsiCo (NASDAQ:PEP) and carrier Delta Air Lines (NYSE:DAL) are set to report before the market opens later Thursday.

The strong results in the previous quarter have set consensus expectations very high, with projections for the second quarter suggesting an earnings increase of 8.6% compared to the same period in the previous year, with revenues also expected to rise by 4.7%.

This anticipated growth rate is the most significant since the 9.9% uptick observed in the first quarter of 2022.

“We expect S&P 500 firms will again clear the bar set by consensus estimates,” analysts at Goldman Sachs said, in a note dated June 28. “However, the magnitude of earnings beats is likely to diminish as consensus forecasts set a higher bar than in previous quarters.”

The S&P 500 has rallied 16% so far in 2024, driven by a handful of massive stocks poised to benefit from emerging artificial intelligence technology.

Only 24% of stocks in the S&P 500 outperformed the index in the first half, the third-narrowest six-month period since 1986, according to BofA Global Research strategists.

Meanwhile, the equal-weight S&P 500 -- a proxy for the average stock -- is only up around 4% this year.

4. UK economy shows healthy growth

The U.K. economy returned to growth in May, with monthly gross domestic product climbing by 0.4%, a bigger increase than the 0.2% expected and an improvement from the flat growth in April when wet weather hit consumer spending.

Over the three months to May, the economy expanded by 0.9%, the strongest reading since the three months to January 2022.

This news will be warmly welcomed by the new government of Prime Minister Keir Starmer, as the economy gradually recovers from a brief and shallow recession at the end of last year.

Sterling was trading around its highest levels since early March, boosted by the growth numbers but also by BoE policymakers indicating that inflation remains persistent.

The timing of a rate cut was an "open question", Chief Economist Huw Pill said, dealing a blow to bets of an easing cycle beginning in August.

5. Crude rise after drop in US stockpiles

Crude prices rose Thursday, extending recent gains as a drop in U.S. inventories boosted expectations of tighter global supplies.

By 04:00 ET, the U.S. crude futures (WTI) climbed 0.4% to $82.41 a barrel, while the Brent contract rose 0.4% to $85.39 a barrel.

U.S. crude inventories fell by 3.4 million barrels last week, far exceeding expectations, while gasoline stocks fell by 2 million barrels, much bigger than the 600,000-barrel draw expected during the U.S. Fourth of July holiday week.

The Organization of the Petroleum Exporting Countries also stuck to its forecast for relatively strong growth in global oil demand in 2024 and next year, in its monthly report.

The International Energy Agency releases its monthly report later in the session, and traders will be looking to see if the Paris-based organization updates its more downbeat forecasts.

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