US CPI, UBS results, UK inflation - what's moving markets

Investing.com -- All eyes will be on the monthly U.S. consumer prices release later in the session as investors look for confirmation that the Federal Reserve will start cutting interest rates in September. U.K. inflation was relatively benign, while UBS impressed with its quarterly profit. 

1. US CPI number in spotlight

It’s the turn of consumer prices, due later Wednesday, to cement the start of the Federal Reserve’s easing path next month, after Tuesday’s tame U.S. producer prices release. 

The July producer price index increased a less-than-expected 0.1%, after rising 0.2% in June, the U.S. Labor Department said. In the 12 months through July, the PPI increased 2.2%, backing down from a 2.7% rise in June.

This data resulted in the likelihood of a hefty 50 basis point cut in September rising to 53.5% from 50% a day earlier, according to CME's FedWatch Tool.

The upcoming consumer price index release on Wednesday is expected to confirm generally benign inflationary pressures, which would allow the U.S. central bank to cut its policy rate from the 5.25%-5.50% range it has been in for more than a year.

Federal Reserve Chair Jerome Powell has emphasized that favorable inflation data is crucial for a September rate cut.

July CPI data is expected to show that that inflation continued to edge closer to the Fed’s 2% annual target, with forecasts tipping annual core inflation to fall a tick to 3.2%, the lowest since April 2021. 

Headline CPI is expected to remain at 3.0%, on an annual basis. 

2. Futures flat ahead of new inflation release

U.S. stock futures traded largely unchanged Wednesday, steadying after recent gains ahead of the release of the widely-watched monthly consumer prices report. 

By 04:00 ET (08:00 GMT), the Dow futures contract was 25 points, or 0.1%, higher, while S&P 500 futures slipped 1 point, and Nasdaq 100 futures fell 6 points, or 0.1%.

The main Wall Street indices benefited from a broad rally on Tuesday after the release of benign producer prices data.

The blue chip Dow Jones Industrial Average rose more than 400 points, or 1%, while the broad-based S&P 500 gained 1.7% and the tech-heavy Nasdaq Composite soared 2.4%.

The July consumer price index is expected to show inflation pressures remain subdued enough to allow the Federal Reserve to cut interest rates in September.

In the corporate sector, Intel (NASDAQ:INTC) sold its 1.18 million share stake in British chip firm Arm Holdings (NASDAQ:ARM) in the second quarter, a regulatory filing showed on Tuesday.

The chipmaker said earlier this month that it would cut more than 15% of its workforce and suspend its dividend amid a pullback in spending on traditional data center semiconductors and a shift towards AI chips.

The Wall Street Journal reported that chocolate giant Mars is looking to pay $83.50 for each share in packaged foods maker Kellanova (NYSE:K), a 12% premium to Tuesday’s close, while valuing the firm at over $30 billion.

3. UBS impresses with hefty Q2 net profit 

UBS (SIX:UBSG) reported an impressive second-quarter performance Wednesday, with the Swiss banking giant detailing a net profit of $1.14 billion, comfortably surpassing forecasts.

The net profit compared with the $528 million forecast in a company-provided poll of analysts for what were the bank's first results since UBS completed its formal legal merger with Credit Suisse in May.

UBS CEO Sergio Ermotti said that the results reflected the "significant progress" the bank had made since closing the Credit Suisse acquisition.

"We are well positioned to meet our financial targets and return to the levels of profitability we delivered before being asked to step in and stabilize Credit Suisse," he added, in a statement.

"We are now entering the next phase of our integration, which will be critical to realize further substantial cost, capital, funding and tax benefits."

UBS said the macroeconomic outlook was clouded by ongoing conflicts, geopolitical tensions and the upcoming U.S. elections. It expected these uncertainties to persist for the foreseeable future, and that they would likely lead to higher market volatility than in the first half of the year.

4. UK inflation edged higher in July

The U.S. CPI release may be the day’s main economic number [see above], but it’s not the only inflation number of note as the U.K. also published its July consumer prices report.

British consumer price inflation rose to 2.2% in July, rising above the Bank of England's 2% target after two months at that level, but still a sharp drop from the 41-year high of 11.1% seen in October 2022.

However, this was a slightly smaller increase than the 2.3% figure expected, and annual services inflation, closely watched by the BoE, fell sharply to 5.2% in July from June's 5.7%.

This followed data, released on Tuesday, showing annual wage growth excluding bonuses slowed to its lowest in nearly two years at 5.4%.

The Bank of England cut its base rate earlier this month for the first time in over four years, but uncertainty remains about when or if the central bank will cut rates again this year.

5. Crude rises after US inventories draw

Crude prices rose Wednesday, buoyed by industry data showing a bigger-than-expected draw in U.S. stockpiles, while elevated geopolitical tensions in the Middle East added support. 

By 04:00 ET, the U.S. crude futures (WTI) climbed 0.6% to $78.80 a barrel, while the Brent contract rose 0.6% to $81.16 a barrel.

Data from the American Petroleum Institute showed U.S. oil inventories shrank by 5.2 million barrels in the week to August 10, much more than expectations for a draw of 2 million barrels. 

The reading, if confirmed by official inventory data later in the day, showed that demand remained robust in the world’s biggest fuel consumer, even as the travel-heavy summer season wound down. 

Crude markets have also been supported by elevated tensions in the Middle East amid fears that a bigger war in the Middle East will disrupt oil supplies from the crude-rich region.

Iran has vowed a severe response to the killing of the Hamas leader late last month. Israel has neither confirmed nor denied its involvement but it is fighting in Gaza against Hamas after the group attacked Israel in October.