Double-digit inflation rates in Europe have clipped early market sentiment Wednesday, but solid earnings could keep Wall Street’s two-day rally on the rails.
U.S. equity futures edged modestly higher Wednesday, with stocks looking to extend their two-day rally in the face of another set of disappointing U.K. inflation data that clipped investor sentiment and pushed the dollar higher against its global peers.
Britain’s September inflation rate jumped to a fresh 40-year high of 10.1% last month, official figures indicated Wednesday, in a move that is likely to trigger faster and deeper rate hikes from the Bank of England.
Ordinarily, markets would glide past regional inflation readings, but with the BoE poised to begin selling bonds from its multi-trillion balance sheet, and the government still in chaos following the scrapping of its weeks-old economic plans, investors are worried that Britain’s inner turmoil could spillover once again into the broader financial system.
The U.S. dollar index, which tracks the greenback against a basket of global currencies and often acts as a proxy for broader risk sentiment, rose 0.47% overnight to 112.660 while benchmark 10-year Treasury bond yields added 6 basis point to change hands at 4.08%, the highest since 2008.
That leaves investors in a relatively defensive mood heading into the Wednesday session, with housing and mortgage data due before the start of trading and third quarter earnings from Tesla and IBM expected after the closing bell.
The CBOE group’s key volatility gauge was also on the move, rising from yesterday’s levels to 31.26 points, suggesting daily swings of around 72.7 points over the next 30 days for the biggest U.S. benchmark.
The Mortgage Bankers’ Association is likely to show another jump higher in benchmark mortgage rates, which could top the 7% level and have risen more than a full percent since early August.
Government data is also expected to show a further slowdown in single-family home construction over the month of September, as well as an overall 5% decline in housing starts as projects are delayed amid the ongoing surge in building costs and the pullback in demand linked to higher mortgage costs.
Oil markets will also be in focus Wednesday ahead of both the Energy Department’s weekly stockpile data, due at 10:30 am Eastern time, as well the details of President Joe Biden’s plan to sell-off the remaining portion of crude taken from the 180 million barrels taken Strategic Petroleum Reserve earlier this year.
WTI crude futures were marked 8 cents lower in overnight trading at $82.74 per barrel, while Brent contracts for December added 93 cents to $90.96 per barrel.
On Wall Street, futures contracts tied to the S&P 500, which has gained 6.3% since Thursday’s open, are indicating a 3 point opening bell gain while those linked to the Dow Jones Industrial Average are priced for a 25 point bump. The tech-focused Nasdaq is priced for a 39 point gain.
Netflix (NFLX) – Get Netflix Inc. Report shares surged 13.2% after the streaming and media service shocked investors with much better-than-expected third quarter earnings ahead of its ad-supported platform launch.
Tesla (TSLA) – Get Tesla Inc. Report shares rose 1.3% ahead of the clean energy carmaker’s third quarter earnings after the closing bell. Tesla is expected to report a bottom line of $1 per share, up from 62 cents over the same period last year, on record revenues of $21.96 billion.
United Airlines Holdings (UAL) – Get United Airlines Holdings Inc. Report shares, meanwhile, gained 5.8% after the carrier posted stronger-than-expected third quarter earnings while forecasting firmer end-year profits thanks to the ongoing boom in global travel demand.
Procter & Gamble (PG) – Get Procter & Gamble Company (The) Report gained 1.6% after it posted stronger-than-expected first quarter earnings but clipped its full-year sales forecast owing to currency headwinds linked to the surging U.S. dollar.
Stocks in Europe were mixed, with London’s FTSE 100 little-changed on the session and the region-wide Stoxx 600 falling 0.28% in early Frankfurt trading. Overnight in Asia, Japan’s Nikkei 225 ended 0.37% higher as the yen fell to another 32-year low of 149.184 against the dollar, while the MSCI ex-Japan index fell 1.11% into the final hours of trading.
