U.S. stock index futures traded higher on Wednesday, indicating Wall Street could extend the previous session’s gains after fresh inflation data strengthened expectations that the Federal Reserve may be able to keep interest rates on hold.
Producer price data adds to inflation optimism
Investor sentiment improved after the U.S. Labor Department reported that producer prices fell by 0.3 percent in June, a larger decline than economists had expected.
The previous month’s increase was also revised lower to 0.6 percent from an earlier estimate of 1.1 percent.
On an annual basis, producer price inflation slowed to 5.5 percent from a revised 6.0 percent in May, coming in below forecasts of 6.2 percent.
The figures followed Tuesday’s softer-than-expected consumer inflation report, reinforcing expectations that price pressures in the U.S. economy may continue to ease.
Oil prices remain a source of uncertainty
Despite the encouraging inflation data, gains in equity futures were tempered by rising crude oil prices as geopolitical tensions in the Middle East continued to escalate.
During an interview with Fox News, President Donald Trump warned that the United States could target Iran’s power plants and bridges next week
“unless they get to the table and negotiate.”
Higher energy prices continue to raise concerns that inflation could remain elevated despite recent improvements in broader price data.
Wall Street closed higher on Tuesday
Stocks rebounded after Monday’s weakness, led by technology shares.
The Nasdaq Composite advanced 233.83 points, or 0.9 percent, to close at 26,107.01.
The S&P 500 gained 28.25 points, or 0.4 percent, to finish at 7,543.59, while the Dow Jones Industrial Average added 9.63 points to close at 52,508.27.
Cooling consumer inflation supports markets
Tuesday’s rally followed the release of June consumer inflation data, which showed the Consumer Price Index declined by 0.4 percent, exceeding expectations for a modest 0.1 percent decline.
Annual inflation slowed to 3.5 percent from 4.2 percent, while core inflation, excluding food and energy, was unchanged during the month.
The annual core inflation rate eased to 2.6 percent from 2.9 percent, outperforming expectations of 2.8 percent.
Nationwide Chief Economist Kathy Bostjancic said:
“Today’s better than expected core reading gives the Fed breathing room in deciding whether and when to raise interest rates.”
However, she cautioned:
“That all said, the renewed escalation of conflict in the Middle East and announced reimposition of a U.S. blockage has prompted a sharp reversal in oil and gasoline prices that introduces upside risk to our forecast.”
IBM weighs on the Dow while chip stocks rebound
One of the biggest drags on the Dow Jones was IBM (NYSE:IBM), whose shares plunged more than 25 percent after the company released preliminary second-quarter results that disappointed investors.
Elsewhere, semiconductor and hardware stocks recovered strongly after Monday’s sell-off.
The NYSE Arca Computer Hardware Index gained 2.7 percent, while the Philadelphia Semiconductor Index rose 2.5 percent.
Steel, gold and networking shares also posted solid gains, whereas pharmaceutical, healthcare and airline stocks underperformed.