The release of the latest iteration of U.S. consumer prices will be the key event Wednesday, while investors will have to digest Fitch's downgrade of its outlook of China's credit rating. Delta also starts the new quarterly earnings season. 

1. March consumer prices loom large

The economic event of the week is fast approaching, with the latest reading of U.S. consumer prices due later in the session.

There has been a great deal of uncertainty within the markets over when the Federal Reserve will start cutting interest rates, particularly in the wake of Friday’s red hot jobs report and a series of relatively hawkish comments from Fed officials.

Fed funds futures contracts for December this week reflected expectations of around 60 basis points in rate cuts this year, compared to some 150 basis points that had been priced at the start of 2024. 

A solid March CPI number will likely have markets pricing out a June cut, pushing back the expected start of the rate-cutting cycle to July.

Year-on-year headline CPI is expected to rise to 3.4% from 3.2% in February, but the data is also expected to show a slight cooling in monthly price growth and a nominal decrease in the annual core number, which excludes volatile food and energy items. 

Also of interest will be the release of the minutes from the last Fed meeting, due later in the session as well.

This was the Fed gathering that confirmed the central bank’s projection of 75 basis points of rate cuts this year, and traders will be looking to see the extent of the discussion surrounding this view. 

2. Futures edge higher ahead of key CPI release

U.S. stock futures edged higher Wednesday, but gains were limited by the proximity of the release of the latest important inflation report, which could drive market sentiment going forward.

By 04:45 ET (08:45 GMT), the Dow futures contract was 40 points, or 0.1%, higher, S&P 500 futures climbed 5 points, or 0.1%, and Nasdaq 100 futures rose by 30 points, or 0.2%.

The main Wall Street indices have traded in something of a holding pattern for most of the week, traders wary of taking major positions ahead of the March CPI print [see above] as this could determine the outlook for interest rate cuts.

The new quarterly earnings season is also set to start in earnest this week, with numbers from Delta Air Lines (NYSE:DAL) due Wednesday [see below].

Taiwan Semiconductor Manufacturing (NYSE:TSM) will also be in the spotlight, after the world’s largest chipmaker said its sales jumped sharply in March, likely benefiting from increased demand for chips from the artificial intelligence industry. 

3. Fitch cuts China’s credit rating outlook

Fitch Ratings downgraded China’s credit rating outlook on Wednesday, citing concerns over growing public debt and slowing growth in the world’s second-largest economy. 

Fitch downgraded the country’s credit rating outlook to “Negative” from “Stable,” although it still affirmed China’s rating at A+.

“The Outlook revision reflects increasing risks to China's public finance outlook as the country contends with more uncertain economic prospects amid a transition away from property-reliant growth to what the government views as a more sustainable growth model,” the ratings agency said in a note. 

Concerns over slowing economic growth in China have grown in recent months, especially as a post-COVID rebound failed to materialize in 2023, and given the sustained downturn in the country’s key property market.

The Chinese government recently forecast its economy would grow 5% this year, but Fitch expects gross domestic product growth to fall to 4.5% in 2024 from 5.2% in 2023.   

Rival ratings agency Moody's (NYSE:MCO) also downgraded its China outlook to ‘negative’ in December.

4. Delta starts airline reporting season

Delta Air Lines (NYSE:DAL) kicks off the airline reporting season later in the session, and with the carrier having recently reaffirmed its first-quarter estimates, it’s what it says about the current quarter that analysts are looking forward to.

Raised tensions in the Middle East are being reflected in higher fuel prices, which could impact the airline’s earnings forecasts going forward, even with available data pointing to strong demand trends as customers attempt to satisfy their pro-COVID travel urges.

“We will be waiting to hear more about the growth of premium revenue and card remuneration, and are optimistic that unit cost performance ex fuel can remain in line with the prior guide,” said analysts at Bernstein, in a note.

“Those are the keys to more stable earnings power, which in turn fund the balance sheet cleanup that is necessary for equity values to appreciate.”

Delta Air Lines reaffirmed its first-quarter profit forecast in mid-March, expecting its first-quarter adjusted profit per share in the range of 25 cents to 50 cents per share, and a 2024 profit per share forecast of $6 to $7.

5. Crude climbs on continued Middle East worries

Oil prices rose Wednesday, as ceasefire talks in the Middle East remained unsettled, resulting in continued uncertainty over the safety of supplies from this crucial oil-rich region.

By 04:45 ET, the U.S. crude futures traded 0.2% higher at $85.38 a barrel, while the Brent contract climbed 0.2% to $89.59 per barrel.

Hamas said on Tuesday that an Israeli proposal on a ceasefire in their war in Gaza did not meet the demands of Palestinian militant factions, even while adding it would study the offer further.

The conflict contains the risk of dragging in other countries in the region, particularly the militant group’s backer Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries.

Gains, however, have been limited by data from the American Petroleum Institute, released on Tuesday, showing that U.S. crude inventories grew a bigger-than-expected 3 million barrels last week. 

The reading suggested that supplies in the world’s largest fuel consumer were potentially not as tight as markets expected, especially amid record-high production.

Official numbers from the Energy Information Administration are due later in the session.

Source : Economy News by Investing.com / Apr 10, 2024