U.S. stock futures retreat as inflation data and earnings season loom

What’s driving markets

Stock futures were lower as the poor sentiment of recent sessions remained.

The S&P 500 shed 1.2% last week as relatively robust economic data pushed bond yields
TMUBMUSD10Y,
4.069%
toward cycle highs on expectations the Federal Reserve would need to keep raising borrowing costs as it continued to suppress inflation.

“Markets are unable to shake of the shackles of interest rate rises which apparently have further to go, with the resilience of the U.S. economy and persistent inflation currently confirming the trend,” said Richard Hunter, head of markets at Interactive Investor.

Consequently, consumer price index data due on Wednesday, will be firmly in focus for traders, analysts noted.

“Due Wednesday, U.S. inflation is expected to have fallen from 4% to around 3% in June, with a possibly uptick in the monthly data. But core inflation could prove stickier at around the 5% mark,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“In all cases, softening, and ideally softer-than-expected inflation figures carry the potential of pushing the Fed hawks back. That could give quick support to the U.S. stocks which ended the first week of July, and the first week of H2, in the negative,” she added.

Not helping the mood Monday was news out of China, where data illustrating deflationary pressures cemented concerns that the world’s second biggest economy is struggling for traction.

Such a negative narrative tends to be counteracted by accompanying hopes that the authorities in Beijing will unleash more stimulus, and so the reaction is nuanced. Hong Kong’s Hang Seng
HSI,
+0.62%
rose 0.6% but industrial commodities that are often tightly correlated to perceptions of Chinese demand, such as oil
CL00,
-0.70%
and copper
HG00,
-0.87%,
are lower on the day.

Another factor for traders to consider is the second-quarter U.S. corporate earnings season which will kick into gear on Friday, when big banks such as JPMorgan Chase
JPM,
+0.79%,
Citigroup
C,
+0.79%
and Wells Fargo
WFC,
-0.28%
present their numbers.

Profits for the S&P 500 are forecast to fall 6.4%, though strip out the energy sector and the drop is just 0.7%, according to Refinitiv.

“[T]here will be an outsized focus on AI, given the moves in tech this year,” said Stephen Innes, managing partner at SPI Asset Management.

“Still, the timing and ability of S&P 500 companies to generate incremental profits from AI remain uncertain. So management guidance and commentary will help investors identify AI’s enablers, scalers, and long-term beneficiaries,” Innes added.

U.S. economic updates set for release on Monday include May wholesale inventories at 10 a.m. Eastern. There will be a number of Fed officials making comments, including Fed Vice Chair Barr at 10 a.m.; San Francisco Fed President Daly and Cleveland Fed President Mester at 11 a.m.