U.S. stock futures edge higher as wary traders eye crucial inflation report

What’s driving markets

The mood is decidedly cautious as traders await the July U.S. consumer-price index (CPI) report due at 8.30 a.m. Eastern.

Equities have been roiled in 2022 but despite bouncing off its mid-June low, the S&P 500 index remains down 13.5% for the year to date. The drop has been driven by fears that 40-year high inflation will batter consumer confidence, cause the Federal Reserve to hike borrowing costs aggressively and tip the U.S. economy into recession.

Consequently, investors are eager to see that inflation has peaked. Economists forecast headline year-over-year CPI growth will dip from 9.1% in June to 8.7% last month, mostly the result of lower energy costs.

See: U.S. consumers likely got some relief from sizzling price increases in July but Fed won’t feel any better

But many traders fear that if the data shows “core” inflation remains stubbornly high, then the more optimistic tone in stocks seen over much of the past two months will be challenged.

“Markets seems to be going into today’s all important U.S. CPI a little on the apprehensive side,” said strategists at Deutsche Bank in a note to clients.

“The nervousness is hardly surprising when you consider that these prints have coincided with some of the most volatile market reactions over the past year. Indeed, it was only two months ago that the release sent the S&P 500 to its lows for the year and contributed to the Fed accelerating its hiking pace to 75bps,” Deutsche added.

Ahead of the inflation report the dollar index
DXY,
-0.41%
was down 0.1% to 106.31 and U.S. 10-year Treasury yields
TMUBMUSD10Y,
2.802%
were little changed at 2.780%.

Also damping sentiment is a recent rash of poorly-received corporate news. There is particular concern about the health of the semiconductor sector after Micron
MU,
-3.74%
followed Nvidia
NVDA,
-3.97%
with a warning about revenues. The PHLX Semiconductor Index
SOX,
-4.57%
fell 4.6% on Tuesday and is down 27.4% so far in 2022.

In addition, a recent rally in badly battered former bull market darlings has come to a juddering halt in the past few sessions, also hurting retail investor confidence. And some are due for more pain on Wednesday.

Shares in crypto exchange Coinbase
COIN,
-10.55%
were down a further 5.5% in premarket action after reporting a billion dollar second quarter loss, and Roblox
RBLX,
-3.17%,
the videogame group, plunged 17.4% after a key sales metric declined for the second consecutive quarter.

Companies in focus

• Sweetgreen Inc.
  SG,
  -4.21%
  shares plunged 22.8% after the salad restaurant chain’s second-quarter financial results missed Wall Street’s expectations. 

• Shares of Plug Power Inc. PLUG dipped 0.6% in premarket trading Wednesday after the hydrogen fuel-cell company fell shy of expectations with its latest revenue and earnings.

• Wendy’s Co.
  WEN,
  -0.47%
  shares lost 0.5%, after the fast-food company posted weaker-than-expected revenue for the second quarter. 

How are other assets faring

• Oil futures were softer, with U.S. WTI
  CL.1,
  -1.55%
  off 0.8% to $89.73 a barrel.

• Gold
  GC00,
  -0.20%
  fell 0.3% to $1,807 an ounce and bitcoin
  BTCUSD,
  -0.36%
  lost 0.8% to $22,964.

• Asia markets were softer following Wall Street’s overnight lead and after data showed China’s inflation at a two-year high. The Shanghai Composite
  SHCOMP,
  -0.54%
  lost 0.5%, Hong Kong’s Hang Seng
  HSI,
  -1.96%
  shed 2.2% and Japan’s Nikkei 225
  NIK,
  -0.65%
  fell 0.65%. In Europe the Stoxx 600
  SXXP,
  +0.07%
  retreated 0.2%.