The June Consumer Price Index (CPI) fell 0.4% from the previous month, bringing annual inflation down to 3.5%. Economists had expected a smaller 0.2% decline and an annual rate of 3.8%.
The inflation data led traders to scale back expectations of a Federal Reserve rate hike in July. According to CME FedWatch data, the probability of a July rate increase dropped to 17% from 42% a day earlier. However, markets still see a strong possibility of a rate hike in September. Gains in equities were moderated by rising oil prices, which kept Treasury yields above their session lows and renewed concerns about inflation risks.
US stock futures mixed ahed of US CPI data
Earlier, futures tied to benchmark US stock indices traded mixed on Tuesday as Wall Street awaited a key US inflation report, reassessed expectations around artificial intelligence (AI)-driven stocks and tracked higher oil prices amid escalating tensions with Iran.
Dow Jones Industrial Average futures were down around 0.3% in early trade, while S&P 500 futures slipped 0.2%. Tech-heavy Nasdaq 100 futures bucked the trend, rising about 0.2% as investors selectively picked technology shares.
Markets are focused on the US Consumer Price Index (CPI) data due later in the day, which is expected to provide fresh clues on inflation and the Federal Reserve’s next policy move. The Street remains cautious after recent developments but economists expect headline inflation to have eased in June.
Fed outlook in focus as inflation data approaches
According to CME FedWatch data cited by Reuters, traders have increased the probability of a 25-basis-point interest rate hike at the Federal Reserve’s July 28-29 policy meeting. The implied probability has risen to around 43%, compared with roughly 25% a week earlier, the report added.
On Monday, Federal Reserve Governor Christopher Waller said that policymakers were at a “crossroads” and that upcoming inflation data would play a crucial role in determining the next step, Reuters further reported.
Waller said the central bank could not afford to ignore persistent inflation if price pressures continue to surprise on the upside. He noted that several months of stronger-than-expected inflation readings would make another elevated reading difficult to dismiss as temporary noise.
Higher interest rate expectations have weighed on parts of the technology sector, particularly AI-linked chip stocks, as investors worry that tighter monetary policy and heavy capital spending could pressure future earnings.
US-listed shares of South Korean memory chipmaker SK Hynix also extended losses after their recent market debut, reflecting the broader weakness in AI-related semiconductor stocks.
Oil climbs as banks deliver strong earnings
Oil prices also remained in focus after Brent crude posted its biggest single-day gain in years on Monday. Investors are monitoring the impact of renewed geopolitical tensions in West Asia following US moves related to the Strait of Hormuz, raising concerns that higher energy prices could add to inflationary pressures.
Meanwhile, the US earnings season began with major Wall Street banks reporting quarterly results.
JPMorgan Chase posted a record quarterly profit of $21.2 billion, or $7.70 per share, well above analysts’ expectations. Revenue climbed 28% year-on-year to $57 billion.
Chief Executive Jamie Dimon said the strong performance reflected robust market activity, disciplined execution, long-term investments and prudent capital allocation.
Investors are also awaiting quarterly results from Bank of America, Wells Fargo, Citigroup and Goldman Sachs later in the session, with analysts expecting another strong quarter for the country’s biggest lenders.
