Dow Jones futures rise ahead of US CPI inflation data
- US stock futures gain after major averages declined during Thursday's trading session.
- CME FedWatch Tool shows rate hike expectations slipping slightly to nearly 70% from 72%.
- Investors closely await the upcoming US CPI report to gauge future monetary policy tightening.
Dow Jones futures advance by 0.46% to trade near 52,350 during European hours on Friday. Meanwhile, S&P 500 futures gain by 0.44% to trade around 7,630, while Nasdaq 100 futures inch lower by 0.45% to trade near 29,260.
US stock futures gain following a decline in the previous US regular session, which was triggered by recent Producer Price Index (PPI) data that pushed expectations higher for a Federal Reserve rate hike in September.
However, the CME FedWatch Tool indicates a slight decrease in market expectations of a Fed rate hike next week. Markets are currently pricing in nearly 70% probability of a 25-basis-point rate increase, inched lower from a 72% chance earlier in the Asian session. Investors are also closely awaiting the upcoming US Consumer Price Index report, which could further cement these monetary tightening expectations.
The US Bureau of Labor Statistics showed that the headline Producer Price Index rose 5.4% year-over-year in August. This figure climbed from July's 4.8% increase and outpaced analyst forecasts of 5.3%. On a monthly basis, headline PPI matched expectations with a 0.4% increase, while core PPI rose by 0.2%, coming in slightly softer than initial estimates.
Fed’s sparse guidance seen keeping US rate volatility elevated
Strategists at BNY Markets argue that the communication backdrop from the Fed remains a key driver of the rates volatility regime. They contend that “if guidance remains sparse and markets continue to infer the policy path from volatile incoming data, the broader case for elevated rate vol should remain alive,” reinforcing their view that investors should stay attuned to how policy signals – or the lack thereof – shape the volatility landscape along the curve.
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.