Key inflation data, Nike earnings, U.K. housing gloom – what’s moving markets

(C) Reuters

Investing.com — The Federal Reserve’s favorite gauge of inflation is due later Friday, while disappointing results from sports fashion retailer Nike will also be in focus. Wall Street is expected to post a positive month and quarter, but the U.K. housing market remains under pressure.

1. Key inflation data in focus

Both Jerome Powell and Christine Lagarde-the heads of the U.S. Federal Reserve and the European Central Bank, respectively-were insistent at the ECB’s annual gathering at Sintra that conquering inflation was key, and their job was not done yet.

Evidence of how much further they still have to go is likely to emerge Friday, with important inflation numbers emerging on both sides of the Atlantic.

The most important release will be the U.S. core personal consumption expenditures index the Fed’s preferred inflation gauge, which is expected to rise 4.7% for the year and 0.3% for May.

This would be the same as April’s annual figure, proving inflation remains sticky and largely cementing expectations for another quarter of a percentage point interest rate hike, probably at the July meeting.

In Europe, Lagarde has already largely confirmed that the ECB will hike once more in July, and the release of the consumer price data for the whole eurozone will provide clues as to how many more rate increases are likely this year.

The June CPI figure came in at 5.5%, slightly better than expected and a fall from 6.1% last month. French inflation followed Spanish and Italian down to a 14-month low, while German consumer-price gains accelerated this month.

2. Nike slumps premarket after sales disappointment

Nike (NYSE:NKE) is likely to be in the spotlight Friday, after the sportswear giant offered up a gloomy forecast for first-quarter revenue after the close Thursday, predicting that still-high inflation will lead consumers to cut back on spending in North America, the company’s biggest market.

Nike stock traded over 3% lower premarket after the company said it expects first-quarter reported revenue growth to be flat to up low-single digit, compared with an average expectation of a 5.8% rise.

The fourth quarter was also depressing as sales rose 5% in North America in the fourth quarter, the slowest in four quarters, while in Europe, Middle East and Africa sales increased just 3%.

Additionally, the company’s gross margin decreased 140 basis points to 43.6%, driven by higher costs, higher markdowns and continued “unfavorable changes in net foreign currency exchange rates.”

There was one bright spot – China. Sales in the region jumped 16% following the reversal of the country’s rigid zero-COVID-19 policy, which had resulted in sales in the region declining in the first three quarters.

3. Futures edge higher; positive quarter likely

U.S. futures edged higher Friday, ahead of the release of key inflation data as a positive month and quarter draw to an end.

At 05:00 ET (09:00 GMT), the Dow futures contract had climbed 35 points or 0.1%, S&P 500 futures rose 10 points or 0.2%, and Nasdaq 100 futures gained 70 points or 0.5%.

Investors are waiting for the release of the U.S. Personal Consumption Expenditures index, the Fed’s favored inflation gauge, later in the session for clues ahead of the July policy-setting meeting.

Friday is the final trading day of the month, and the broad-based S&P 500 is on course for monthly gains of over 5%, its best monthly performance since January, and a quarterly improvement of almost 7%.

The Nasdaq Composite is even more impressive, with a monthly gain of around 5%, but a quarterly return of over 11%.

4. U.K. housing market under pressure

The average price of U.K. homes fell the most in June on an annual basis since 2009, according to Nationwide Building Society, illustrating the impact of soaring mortgage rates on borrowers.

The data showed that the pace of declines stepped up to 3.5%, from 3.4% a month earlier, taking the price of an average home to ?262,239 (?1 = $1.2636).

More weakness is likely as much of June’s housing market activity will have come before the Bank of England authorized a 50 basis-point hike, taking its base rate to 5%, with inflation remaining at 8.7% in May, more than four times the BOE’s 2% target.

“The sharp increase in borrowing costs is likely to exert a significant drag on housing market activity in the near term,” said Nationwide chief economist Robert Gardner. “Longer-term borrowing costs have risen to levels similar to those prevailing in the wake of the mini-Budget last year, but this has yet to have the same negative impact on sentiment.”

5. Brent on course for first monthly gain this year

Crude prices traded higher Friday, boosted by a big drawdown in U.S. oil stocks as well as signs of resilience by the U.S. economy, the largest consumer of crude in the world.

By 05:00 ET, U.S. crude futures were 1% higher at $70.53 a barrel, while the Brent contract rose 1% to $75.23 per barrel.

Both contracts were set to add between 2% and 3% for June, with Brent marking its first positive month this year after WTI recorded a gain in April.

Providing support was the news that U.S. crude inventories dropped by 9.6 million barrels last week, suggesting tightening supply in this key market, while U.S. gross domestic product in the first quarter was revised up to a 2.0% annualized rate from the 1.3% pace reported previously.

That said, on a quarterly basis, Brent looks set for a loss of about 6% while WTI appears headed for a decline of about 7%, the first back-to-back quarterly losses since 2019, on the back of China’s sluggish economic recovery and aggressive interest-rate hikes by western central banks.

The week closes with the U.S. oil rig count from Baker Hughes, an indicator of future supply, and CFTC positioning data.