Tame Producer Price Inflation Data May Generate Early Buying Interest

The major U.S. index futures are currently pointing to a higher open on Thursday, with stocks likely to extend the rebound from the pullback seen to start the year.

Early buying interest may be generated in reaction to a report from the Labor Department showing only a slight uptick in U.S. producer prices in the month of December.

The Labor Department said its producer price index for final demand edged up by 0.2 percent in December after jumping by an upwardly revised 1.0 percent in November.

Economists had expected producer prices to rise by 0.4 percent compared to the 0.8 percent increase originally reported for the previous month.

Excluding food, energy and trade prices, core producer prices rose by 0.4 percent in December after climbing by 0.8 percent in November.

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The report also showed the annual rate of producer growth slowed to 9.7 percent in December from a record high 9.8 percent in November. The yearly core price growth was unchanged at 6.9 percent.

Following yesterday’s report showing a slowdown in monthly consumer price growth, the data may add to optimism that inflation has peaked.

Traders are also likely to keep an eye on a Senate Banking Committee hearing on Lael Brainard’s nomination to be Federal Reserve Vice Chair.

In prepared remarks, Brainard described as inflation as “too high” and said monetary policy will be focused on “getting inflation back down to 2 percent while sustaining a recovery that includes everyone.”

Stocks fluctuated after an early move to the upside on Wednesday but managed to finish the session modestly higher. The tech-heavy Nasdaq closed higher for the third straight day after hitting a nearly three-month intraday low on Monday.

The major averages closed well off their highs of the session but still in positive territory. The Dow inched up 38.30 points or 0.1 percent to 36,290.32, the Nasdaq edged up 34.94 points or 0.2 percent to 15,188.39 and the S&P 500 rose 13.28 points or 0.3 percent to 4,726.35.

The modest strength on Wall Street came following the release of the Labor Department’s highly anticipated report on consumer price inflation in December.

While the report showed the annual rate of consumer price growth once again reached the highest level in almost 40 years, traders seemed relieved the acceleration was not even more significant.

The report showed the annual rate of consumer price growth accelerated to 7.0 percent in December from 6.8 percent in November, showing the biggest yearly jump since June of 1982.

Core consumer prices, which exclude food and energy prices, were up by 5.5 percent year-over-year in December compared to the 4.9 percent spike in November. The annual growth reflected the biggest surge since February of 1991.

The continued acceleration in the annual rate of consumer price growth came as prices increased by slightly more than expected on a monthly basis, although the pace of growth slowed from November.

Treasury yields moved to the downside following the release of the report, offsetting some of the interest rate concerns that dragged the markets lower to start the year.

Steel stocks moved sharply following data showing easing Chinese inflation, with the NYSE Arca Steel Index spiking by 2.9 percent to its best closing level in almost four months.

Significant strength also emerged among gold stocks, as reflected by the 1.7 percent gain posted by the NYSE Arca Gold Bugs Index.

The strength in the gold sector came as the price of the precious metal climbed amid a decrease in the value of the U.S. dollar.

Natural gas stocks also moved notably higher amid a surge in the price of the commodity, driving the NYSE Arca Natural Gas Index up by 1.5 percent.

On the other hand, a steep drop by Biogen (BIIB) weighed on the biotechnology sector, dragging the NYSE Arca Biotechnology Index by 1.4 percent.

Biogen came under pressure after Medicare said it would only cover treatment with the biotechnology company’s Alzheimer’s treatment Aduhelm if patients were enrolled in a clinical trial.

Commodity, Currency Markets

Crude oil futures are slipping $0.39 to $82.25 a barrel after jumping $1.42 to $82.64 a barrel on Wednesday. Meanwhile, after climbing $8.80 to $1,827.30 an ounce in the previous session, gold futures are falling $7.60 to $1,819.70 an ounce.

On the currency front, the U.S. dollar is trading at 114.26 yen versus the 114.64 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1468 compared to yesterday’s $1.1442.

Asia

Most Asian stock markets yielded to panic on Thursday, as the worsening coronavirus situation and the likely economic impact of the virus-related curbs rattled investor sentiment.

Asian stocks struggled for momentum despite the keenly awaited December inflation number from the U.S. being more or less on expected lines.

China’s Shanghai Composite Index lost 42.17 points or 1.2 percent to finish at 3,555.26 amid growing concerns over the coronavirus situation, the strict lockdowns and the resultant impact on the economy.

The Japanese benchmark Nikkei 225 Index shed 276.53 points or 1 percent to close at 28,489.13, as the fast-spreading Omicron variant dampened investor sentiment and ignited concerns over whether growth could coexist with the worsening pandemic situation.

Electrical equipment maker Yaskawa Electric Corp. plunged 6.3 percent. Food retailer Aeon Co. and entertainment business Toho Co. also shed more than 5 percent.

Meanwhile, Pacific Metals Co. surged in 6.6 percent, followed by Toho Zinc Co., which spiked 5.9 percent.

The Hang Seng Index of the Hong Kong Stock Exchange added 27.60 points or 0.1 percent from previous close to finish trading at 24,429.77. The day’s high was at 24,561.48 and the low at 24,289.19.

South Korea’s Kospi lost 10.39 points or 0.4 percent to close at 2,962.09. The day’s trading range was between 2,958.39 and 2,982.14.

Australia’s S&P/ASX200 Index closed trading at 7,474.40 after gaining 35.50 points or 0.5 percent. The index is currently 2.1 percent below its 52-week high of 7632.80.

The top-performing stock of the index was casino operator Crown Resorts, which rallied 8.77 percent after U.S. private equity giant Blackstone Inc. increased its takeover bid. Nickel Mines surged 5.16 percent.

Medical device company Polynovo dropped more than 10 percent, a day after it issued a positive trading update, resulting in a major uptick. Pointsbet Holdings and Sonic Healthcare both declined more than 5 percent.

Europe

European stocks have turned in a relatively lackluster performance during trading on Thursday as traders react to the latest U.S. inflation readings.

Currently, the major markets in the region are mixed. While the French CAC 40 Index is down by 0.4 percent, the U.K.’s FTSE 100 Index is up by 0.1 percent and the German DAX Index is down by 0.2 percent.

Shares of Britain’s Countryside Properties have moved sharply lower after announcing that its CEO will step down following a disappointing quarter.

U.S. Economic Reports

Reflecting a sharp pullback in energy prices, the Labor Department released a report on Thursday showing only a slight uptick in U.S. producer prices in the month of December.

The Labor Department said its producer price index for final demand edged up by 0.2 percent in December after jumping by an upwardly revised 1.0 percent in November.

Economists had expected producer prices to rise by 0.4 percent compared to the 0.8 percent increase originally reported for the previous month.

Excluding food, energy and trade prices, core producer prices rose by 0.4 percent in December after climbing by 0.8 percent in November.

The report showed the annual rate of producer growth slowed to 9.7 percent in December from a record high 9.8 percent in November. The yearly core price growth was unchanged at 6.9 percent.

Meanwhile, a separate report from the Labor Department showed an unexpected increase in initial jobless claims in the week ended January 8th.

The report said initial jobless claims rose to 230,000, an increase of 23,000 from the previous week’s unrevised level of 207,000. Economists had expected jobless claims to edge down to 200,000.

Beginning at 10 am ET, the Senate Banking Committee is due to hold a hearing on Lael Brainard’s nomination to be Federal Reserve Vice Chair.

The Treasury Department is scheduled to announce the details of this month’s twenty-year bond auction at 11 am ET.

At 12 pm ET, Richmond Federal Reserve President Thomas Barkin is due to speak before the Virginia Bankers Association/Virginia Chamber of Commerce’s Financial Forecast event.

The Treasury Department is scheduled to announce the results of this month’s auction of $22 billion worth of thirty-year bonds at 1 pm ET.

Also at 1 pm ET, Chicago Federal Reserve President Charles Evans is due to speak on the economy and monetary policy before the Milwaukee Business Journal Economic Forecast 2022.

Stocks In Focus

Shares of KB Home (KBH) are moving sharply higher in pre-market trading after the homebuilder reported better than expected fourth quarter earnings and provided upbeat guidance.

Chipmaker Taiwan Semiconductor (TSM) is also likely to see initial strength after reporting fourth quarter earnings that beat analyst estimates and offering an upbeat outlook.

Shares of Delta Air Lines (DAL) may also move to the upside after reporting fourth quarter results that exceeded analyst estimates on both the top and bottom lines.