Pre-Market Snapshot: Tame Inflationary Data Boosts Futures

by: SA Editors
SA Editors
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Wall St. Breakfast's Pre-Market Snapshot:

U.S. Futures As of 8:52 AM EST

S&P 500: +2.90; 1,520.10
NASDAQ 100: +6.25; 1,961.50
Dow: +11.00; 13,528.00

International Indexes

NIKKEI 225: +1.15%; 18,138.36 (+206.09)
HANG SENG: -0.75%; 21,772.73 (-165.49)
S&P/ASX 200: +0.15%; 6,274.90 (+9.30)
BSE SENSEX 30: +1.01%; 14,650.51 (+145.94)

FTSE 100: -0.36%; 6,547.60 (-23.70)
CAC 40: -0.11%; 5,999.96 (-6.35)
XETRA-DAX: +0.17%; 7,934.90 (+13.54)

Commodity Futures (Reuters/Jefferies CRB)

Oil: +0.86%; $70.17 (+$0.60)
Gold: +0.26%; $652.10 (+$1.70)
Natural Gas: +0.68%; $6.70 (+$0.04)
Silver: +0.96%; $12.625 (+$0.12)

U.S. Breaking Newssee today's Wall Street Breakfast for earlier news

Core Inflation Remains a Low 0.1%

The Commerce Department's core consumer price index [CPE] moved up just 0.1% again in May, as expected, leaving annual core inflation at 1.9%, just within the Federal Reserve's assumed 1-2% inflation comfort zone. Rising energy costs pushed headline inflation up a hefty 0.5%, after a 0.3% April gain. Real consumer spending increased by 0.5% seasonally adjusted, while incomes were up 0.4%. Economists were calling for a 0.6% rise in income and a 0.7% gain in spending. Durable goods purchases were up Core PCE 29 6 070.4% after falling 0.6% in April, while non-durable goods spending jumped 1.4%. Personal saving as a percentage of disposable income fell 1.4%, its 26th straight drop. "There has been a clear slowing in core prices the past few months, but as the Fed cautioned yesterday, it remains to be seen whether that is sustainable," said UBS economist James O'Sullivan.
Sources: Press release, MarketWatch, Bloomberg, Wall Street Journal
Commentary: FOMC Takes a Dovish Stance Despite Persistent Inflationary RisksIs the War on Inflation Over?Fed Holds Rates Steady
Stocks/ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)

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Today's Market (via Sam Collins,

Recap of Yesterday's Action
Stocks opened slightly up but rallied in the afternoon Thursday, despite higher crude oil prices, as institutional traders continued to add stocks to their portfolios in anticipation of the ending of Q2 at the close today.

Usually trading is flat prior to a Fed meeting announcement, but as the magic time approached yesterday, the averages drifted lower and were almost flat when the moment came. As it turned out, no one needed to have worried since the Fed kept the Federal Funds rate at 5.25%.

The Fed governors said that, even though inflationary pressures were still high, some improvements were seen. They also said that the growth would likely "continue at a modest pace over coming quarters" and that growth "appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector."

In other news, the final revision of Q1 GDP showed a slight upward revision in growth, and a key gauge of inflation in the GDP report was also revised higher. And with that, the bond market became the subject of some selling, causing the 10-year Treasury note to close lower by 9/32 with a yield of 5.12%. And finally, General Motors (NYSE:GM) said that it had an agreement with the Carlyle Group and Onex Corp. to sell its Allison Transmission business for $5.6 billion.

At the close of a somewhat volatile session yesterday, the Dow Industrials dropped five points to close at 13,422, the S&P 500 fell almost a point to 1,506, and the Nasdaq rose three to 2,608. Volume on the NYSE totaled 1.5 billion shares, and 1.9 billion shares traded on the Nasdaq. Advancing issues exceeded decliners by 18-to-13 on the NYSE and 15-to-14 on the Nasdaq.

The biggest news of the day occurred in the oil pits, as August crude oil broke through $70 a barrel for the first time in nine months. But selling trimmed the gains to an advance of 60 cents, and the contract closed at $69.57. Meanwhile, the Amex Energy SPDR (NYSEARCA:XLE) lost 27 cents and closed at $68.69.

Refinery problems continue to put pressure on prices, and one trader was quoted as saying that "$80 per barrel is likely this summer." A close above $70 would break through a double-top with the implication that prices could quickly run to $76 a barrel.

Gold (August contract) added to Wednesday's recovery by gaining $5.60 to close at $650.40 per troy ounce, while the Philly Gold and Silver Index [XAU] dropped 16 cents to $134.86. The picture there is unchanged, with the index still in a short-term downward channel with the ball in the hands of the bears and the next support at the lower trendline of a triangle at just below $130.

What the Markets Are Saying
Yesterday's trading did little to change the outlook for stocks with pressure still on the bulls to hold the line at the June lows. Sentiment continues to be negative with yesterday's American Association of Individual Investors [AAII] survey now at 39.02% bullish and 35.20% bearish with 25.20 neutral. And the Investors Intelligence data is bearish, too.

But other indicators like momentum, which include the put/call ratios, are neutral. So even though it's a good idea to be cautious at this level, as long as Dow 13,207, S&P 1,487 and NYSE Composite 9,702 hold, we may bail out of this lethargy with just a sideways movement for a month or so. For now, it's best to stay as neutral as the market is and let it tell you what its next move will be.

Today's Trading Landscape
Today we finish the week, month and quarter with May personal income, personal spending, personal consumption expenditure [PCE] deflator (read above), construction spending and the June Chicago Purchasing Managers Index. This is a lot of economic data, and the markets will be focused on that today.

Asian Headlines (via

Asian Stocks Climb for a Second Day on Earnings Outlook; Toyota Advances Asian stocks climbed for a second day, led by Sony Corp. (NYSE:SNE), after Japan's household spending rose and its jobless rate stayed at a nine-year low, signaling strengthening demand in the region's biggest economy.

Japan Consumer Prices Fall for Fourth Month, Jobless Rate at Nine-Year Low Japan's consumer prices fell 0.1 percent in May, a pace of decline unlikely to dissuade the central bank from raising its benchmark interest rate, the lowest among major economies.

China's Economy May Expand Most in 12 Years, Central Bank Researchers Say China's economy may expand at the fastest pace in 12 years in 2007 and inflation will exceed the central bank's target, according to a report by economists at the People's Bank of China research department.

Yen Weakens, Heading for Biggest Quarterly Loss Since 2001 on Gap in Yield The yen headed for its biggest quarterly loss against the dollar since 2001 as a drop in consumer prices reinforced speculation the Bank of Japan will keep interest rates on hold.

China Approves $200 Billion Sale for Fund to Buy Reserves, Boost Returns China approved a 1.55 trillion yuan ($200 billion) sale of government bonds to set up a fund that will seek higher returns on the nation's currency reserves.

European Headlines (via

Stocks in Europe Decline, Led by Banks, Insurers; Schroders, Allianz Drop European stocks fell on concern government reports in the U.S. may show the world's largest economy isn't expanding enough to fuel earnings growth.

U.K. Economy Grew Faster-Than-Expected 3 Percent Last Quarter on Services The U.K. economy grew faster than expected in the first quarter, as services and government spending expanded more than previously estimated.

European June Business, Consumer Confidence Stays Close to Six-Year High European business and consumer confidence stayed close to a six-year high in June as global growth boosts demand and unemployment declines.

ING Will Sell Belgian Insurance Unit to P&V Verkezeringen for $1 Billion ING Groep NV (NYSE:ING), the Netherlands' biggest financial-services firm, agreed to sell its Belgian broker and employee benefits insurance unit to P&V Verzekeringen for 750 million euros ($1.01 billion).

BBVA Hiring 240 Derivatives Bankers Worldwide This Year Amid Sales Drive Banco Bilbao Vizcaya Argentaria SA (BBV), Spain's second-largest bank, is increasing derivatives staff by 16 percent, hiring 240 bankers worldwide this year, to boost revenue in the securities industry's fastest-growing business.