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Stock index futures fell on Tuesday, but the opening direction will likely be dictated by the latest retail inflation data.
Nasdaq 100 Futures (NDX:IND) -0.6% ran into trouble after weak guidance from Lattice Semiconductor (LSCC) raised some doubts in the high-flying chip sector. S&P Futures (SPX) -0.3% and Dow futures (INDU) -0.1% They were shorter.
“The risk of a return to inflation is undervalued and increasing,” wrote strategist Ben Laidler. “With the US labor market surprisingly healthy and strong economic growth…Q1 NOWCast GDP is above average at 3.4%.”
“10-year bond yields have risen, hopes of Fed rate cuts have faded and the US dollar has been the best-performing major currency this year. stocks welcomed the lower risk of recession and firmer earnings prospects. But they may be underestimating the tail risk of an “Inflation Upside Surprise.” “It's the most important number in the markets, the biggest investment risk, and our inflation tracker is now flashing yellow.”
The 10-year Treasury yield (US10Y) was steady at 4.17%. The 2-year yield (US2Y) was stable at 4.47%.
The January CPI was released before the bell rang. The forecast is that the headline will rise by 0.2%, which will bring the annual rate down to 2.9%. The core CPI is expected to increase by 0.3%, with an annual rate of 3.7%.
“Notable in today's details is evidence that earnings-driven inflation continues to retreat (temporary durable goods price inflation has been in deflation for 13 months and is not a focus),” said Paul Donovan of UBS. “Food prices may also matter because they are a political issue. The data reflects so-called 'counterinflation'. Price rounding has prevailed and can be seen in the very rapid inflation of vending machines.”
“A first headline inflation figure below 3% from today's January report is needed to validate the benign consensus of 'immaculate disinflation' driven by the productivity boom,” Laidler added.
