© Reuters.
Investing.com – Major indicators point towards a weaker opening on Wall Street, amid a degree of caution ahead of the release of key US inflation numbers. Weak outlook from the sports retail giant Nike The index was also affected, although a continued year-end rally with weekly gains remains likely. The news in the United Kingdom was less impressive, as its economy slumped in the third quarter, opening the possibility of a recession through the end of the year.
1. The Fed’s preferred measure of inflation looms
Investors will take another look at the US inflation picture before they head out for the Christmas holidays with the release of the Personal Consumption Expenditures report, the Federal Reserve’s core inflation gauge, for November.
Economists expect the index to remain flat for a second month in November, while the index, which excludes volatile food and energy costs, is expected to rise 0.2%.
The Fed’s more dovish tone at its latest meeting has investors pricing in interest rate cuts of about 150 basis points next year, especially with mounting evidence that price pressures are easing and the labor market is slowing in the face of aggressive aggression. Interest rates increase from March 2022 to July 2023.
Any signs of steady inflation are likely to dampen expectations for rate cuts, but Thursday’s downward revision to third-quarter personal consumption expenditures growth data heralds a bearish surprise.
2. Futures decline but Wall Street is on track for another positive week
US stock futures fell on Friday amid caution ahead of key inflation data, although the year-end rally looks set to continue with further weekly gains.
By 04:55 EST (09:55 GMT), the contract was down 100 points or 0.3%, down 4 points or 0.1%, and down 40 points or 0.2%.
The three major indexes closed strongly on Thursday, rebounding from the previous session’s losses. Blue-chip stocks rose more than 300 points, or 0.9%, while broad-based stocks rose 1%, and technology-heavy stocks rose 1.3%.
These averages are on track for their eighth straight positive week — the first for the S&P 500 since 2017 and for the DJIA dating back to 2019.
However, the session could start on a negative note given weakness in the Dow Jones Nike (NYSE:) (see below) and amid caution ahead of the release of the Fed’s most closely watched inflation gauge (see above).
However, financial markets will “take off” once investors are confident that the Fed is done raising interest rates, outgoing Morgan Stanley CEO James Gorman said in an interview with the Financial Times on Friday.
“The moment the Fed concretely signals that they have stopped raising interest rates, let alone the point at which they are cutting rates for the first time, these markets will take off,” he said.
3. Nike declines after consumer demand warning
Nike shares fell in pre-market trading in New York on Friday after the sportswear giant cut its annual sales forecast, warning of a lower revenue outlook in the second half due to cautious consumer spending.
Nike now expects full-year revenue to rise about 1%, down from its previous forecast of mid-single-digit growth. Analysts had expected a 3.8% increase, according to LSEG data.
“We are seeing signs of more cautious consumer behavior around the world,” Matthew Friend, Nike’s chief financial officer, said in a post-earnings call.
The Oregon-based company is under constant pressure amid volatile demand, especially from China, with growth slowing in the world’s second-largest economy, forcing the company to boost promotions.
Nike responded to the uncertainty, targeting $2 billion in cost savings over three years by simplifying the product assortment, increasing automation and use of technology, and streamlining operations.
4. The UK is heading towards recession
The UK economy is clearly looking into recession after a review of previously released growth data, released earlier on Friday, showed it contracted between July and September, ahead of a potentially weak final quarter of the year.
It contracted by 0.1% in the third quarter, according to data from the Office for National Statistics, a downward revision after the independent producer of official statistics previously estimated the economy was unchanged from the previous three months.
Likewise, GDP in the second quarter is now estimated to be flat, a decline from the previous estimate of 0.2%.
A recession is officially defined as two consecutive quarters of negative growth, and this puts the focus on the final quarter of the year amid signs that the UK economy is still suffering the hit from high borrowing costs so far.
5. Oil prices rise despite Angola’s decision to exit OPEC
Oil prices rose on Friday, on track for huge weekly gains, following concerns over shipping in the Red Sea following a series of Houthi attacks on ships in the region.
By 04:55 ET, futures trading was up 1.2% at $74.78 per barrel, while the contract was up 1% at $80.16 per barrel.
Both standard contracts rose by more than 4% this week, heading for strong gains for the second week in a row, due to expectations of supply shortages, especially in the main Asian market, where many oil and shipping companies chose to avoid using the Suez Canal, which handles about 12% of world Trade.
Capping the gains was Angola’s decision to withdraw from the Organization of the Petroleum Exporting Countries, saying its membership did not serve its interests.
OPEC and its allies, including Russia, have reduced production levels in a series of steps in order to boost prices, including voluntary production cuts totaling about 2.2 million barrels per day for the first quarter of 2024.
The African country had previously protested the decision to reduce the country’s oil production quota for the year 2024.
Although Angola represents only a small portion of the cartel’s total production, and Brazil is set to join the group next year, the move raises concerns about the unity of the cartel as a whole.