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Tech rally, hot inflation, oil prices buoyant- what’s moving markets

Published 03/13/2024, 05:00 AM
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Investing.com-- Markets will be watching to see whether major U.S. technology stocks can continue to help Wall Street rise past growing concerns over higher-for-longer interest rates, following upbeat consumer price index inflation data. Gold prices fell from record highs after the reading, with more U.S. inflation cues also on tap later this week. 

1. Futures fall after AI hype spurs Wall Street gains 

U.S. stock index futures fell slightly on Wednesday, after a rally in tech stocks helped Wall Street rise sharply in the prior session. The S&P 500 finished at record highs on Tuesday, while the NASDAQ Composite jumped 1.6%. TheDow Jones Industrial Average was held back by losses in Boeing Co (NYSE:BA). 

Gains were triggered largely by persistent optimism over artificial intelligence, after cloud computing giant Oracle Corporation (NYSE:ORCL) clocked better-than-expected earnings and said it was planning to partner with market darling NVIDIA Corporation (NASDAQ:NVDA) for its AI ambitions. 

Nvidia- the third-largest U.S. company by market capitalization, rallied over 7% on Tuesday, and was up nearly 1% in premarket trade. Gains in the stock spilled over into other AI-exposed stocks, with Microsoft Corporation (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL) and Meta Platforms Inc (NASDAQ:META) rising between 0.6% and 4%.

Strength in tech helped Wall Street largely look past hotter-than-expected CPI inflation data.

2. CPI data beats expectations; PPI, retail sales awaited 

CPI data showed inflation remained stickier than expected in February, while also tending well above the Fed’s 2% annual target range. The reading also came after several Fed officials warned that sticky inflation will keep the central bank from cutting interest rates early.

But markets largely maintained bets that the Fed will begin cutting rates by June 2024, according to the CME Fedwatch tool.

Tuesday’s CPI data also set the stage for producer price index and retail sales data, due on Thursday. The readings will be closely watched for any more cues on U.S. inflation, as well as any signs of resilience in consumer spending, which usually underpins inflation. 

Still, Wall Street so far appeared to be unperturbed by the hot CPI reading. 

3. Oil prices supported by inventory draw, OPEC outlook 

Oil prices rose 0.4% in early New York trading Wednesday, supported chiefly by industry data showing U.S. inventories unexpectedly shrank in the week to March 8. Data from the American Petroleum Institute (API) showed crude inventories shrank by 5.5 million barrels, compared to expectations for a build of 0.4 million barrels.

The API data usually heralds a similar reading from official inventory data, which is due later on Wednesday. 

Also aiding sentiment towards oil markets, the Organization of Petroleum Exporting Countries (OPEC) maintained its outlook on improving crude demand in 2024 and 2025, in a monthly report released on Tuesday. 

But despite Wednesday’s gains, Brent and WTI prices remained squarely within a $75 to $85 a barrel trading range established over the past two weeks.

An increased outlook for U.S. crude production, which is already at a record-high 13 million barrels per day, also dulled gains in oil. 

Oil markets were also watching for a monthly report from the International Energy Administration, due later this week.

4. Gold prices fall from record highs after CPI data

Tuesday’s CPI data had a more pronounced impact on metal markets, especially after a sharp melt-up in gold prices over the past week.

Spot prices of the yellow metal slid 2% this week from a record high of near $2,200 an ounce, and were now trading around the mid-to-high $2,150’s. 

Other precious metals also retreated on Wednesday, albeit slightly. Metal markets were now awaiting more cues on U.S. interest rates from the key data prints due later in the week.

5. Japanese stocks extend losses with BOJ pivot in focus

Japan’s Nikkei 225 and TOPIX indexes fell further from record highs on Wednesday. 

Markets were watching wage negotiations between major Japanese companies and employee unions, with any outsized increase in wages likely to elicit a hawkish response from the Bank of Japan. 

Early reports showed that Toyota Motor Corp (NYSE:TM) (TYO:7203), one of Japan’s biggest employers, had agreed to a substantial wage increase this year. The stock fell nearly 1%. 

Higher wages are a key consideration for the BOJ to phase out its negative interest rates and yield curve control policies- bringing an end to the highly stimulative measures which had powered a stellar rally in Japanese markets over the past year.

The BOJ is set to meet next week, and is expected to signal or even enact an end to its ultra-dovish policies either then, or at a late-April meeting. 

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