Dow Jones, S&P 500, Nasdaq set for lower open as stubborn inflation weighs on sentiment ahead of retail sales release

6.30am: Retail sales for January due

Wall Street is expected to open lower as investors look to January’s retail sales data for further direction after inflation numbers for the same month yesterday revealed that prices remain stubbornly high. 

Futures for the Dow Jones Industrial Average (DJIA) fell 0.2% in Wednesday pre-market trading, while those for the broader S&P 500 index declined 0.3%, and contracts for the Nasdaq-100 shed 0.4%.

January’s consumer price index (CPI) came in higher than expected at 6.4% year-over-year, although the monthly rise of 0.5% was in line. The core index, which excludes the food and energy components, rose 0.4% month-over-month, on par with the Street’s expectation. Core inflation came in up 5.6% over the 12 months to January, ahead of the expected 5.4%. 

US stock ended mixed following the CPI release, with the DJIA closing down 0.5% at 34,089 on Tuesday, while the S&P 500 ended flat, 1 point lower at 4,136, but the Nasdaq Composite gained 0.6% to 11,960. 

“The inflation report really needed to over-deliver after the red-hot labour market figures earlier in the month and it simply didn’t do it,” commented Craig Erlam, senior market analyst at OANDA. “The trend remains positive but it may be stalling and that won’t give the Fed (Federal Reserve) any encouragement to stop raising interest rates.”

“The next 25 basis point hike was never really in doubt anyway but now markets are factoring in much more, including another in May and a good chance of one more in June,” Erlam said.

Meanwhile, US retail sales for January are expected to have bounced back from the weakness seen in December, TickMill Group market analyst James Harte noted. 

“Consensus forecasts are built around 0.9% for the core figure, up from -1.1% prior, and 1.9% for the headline figure, up from -1.1% prior,” Harte said. “Resilience in the US economy, particularly coupled with a fresh jump in inflation, is supporting the view that the Fed will continue with hikes for longer than expected this year.”