Wall Street looks set to start higher Thursday although the latest U.S. retail sales data could derail the ongoing optimism. Cisco is set to star after unveiling a restructuring plan, while the U.K. economy showed signs of growth in the second quarter.
1. Economic data slate in spotlight The U.S. economic data parade continues Thursday, as investors seek clues on the likely pace of interest cuts by the Federal Reserve.
Mild readings for U.S. inflation this week have largely cemented market certainty that the Fed will lower borrowing costs in September for the first time in more than four years, but debate still rages over the size of the cut - the standard 25 basis points, or a more aggressive 50 bps.
The estimated chance of a 50 bps cut fell to 36%, down from 50% just a day earlier, after Wednesday’s CPI release. It had risen to 71% at the start of this month in the wake of the surprisingly weak U.S. payrolls data.
The data slate includes weekly jobless claims, the Philadelphia Fed manufacturing index for August, but the July retail sales release that will garner most attention as consumption accounts for about two-thirds of U.S. economic growth.
This is expected to show monthly growth of 0.4%, a slight improvement from the prior month’s flat reading.
The Fed has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range since last July, after hiking its policy rate by 525 basis points since 2022.
2. Futures gain ahead of data dump U.S. stock futures rose Thursday, amid growing optimism that benign inflation will prompt the Federal Reserve to start cutting interest rates next month.
By 04:20 ET (08:20 GMT), the Dow futures contract was 100 points, or 0.3%, higher, S&P 500 futures climbed 8 points, or 0.1%, and Nasdaq 100 futures rose by 52 points, or 0.3%.
The main Wall Street indices closed higher Wednesday after the July consumer price index showed an annual inflation rate of 2.9%, the lowest since 2021.
The blue chip Dow Jones Industrial Average rose more than 240 points, or 0.6%, while the broad-based S&P 500 gained 0.4% and the tech-heavy Nasdaq Composite posted very small gains.
The July retail sales data [see above] will be in the spotlight Thursday as investors look for evidence of the strength of the overall economy given easing inflation appears to offer the Federal Reserve an opportunity to cut interest rates in September.
In the corporate sector, retail giant Walmart (NYSE:WMT) is set to release its earnings before the open, and will provide more clues over the strength of consumer spending.
Additionally, Ulta Beauty (NASDAQ:ULTA) stock soared premarket after Warren Buffett’s Berkshire Hathaway (NYSE:BRKa) reported a new stake in the cosmetics company, while Nike (NYSE:NKE) stock gained after Bill Ackman’s Pershing Square revealed a position in the sports footwear retailer.
3. Cisco gains on restructuring plan Cisco Systems (NASDAQ:CSCO) stock gained strongly in extended trading late Wednesday after the networking equipment giant reported better-than-expected fourth-quarter earnings and announced a restructuring plan.
At 08:20 ET, Cisco shares were up over 6% in premarket trading.
It reported revenue of $13.64 billion for the fourth quarter ended July 27, compared with an estimate of $13.54 billion. Its adjusted profit per share was 87 cents, compared with the estimate of 85 cents.
Cisco also revealed plans for job cuts, saying it’s cutting 7% of its global workforce, expecting to incur a pretax charge of up to $1 billion for severance and other one-time termination benefits. The company also anticipates recognizing charges of about $700 million to $800 million in the first quarter of fiscal 2025.
"We delivered a strong close to fiscal 2024," said Chuck Robbins, chair and CEO of Cisco. "In our fourth quarter, we saw steady customer demand with order growth across the business as customers rely on Cisco to connect and protect all aspects of their organizations in the era of AI."
4. UK economy grew 0.6% in Q2 There is also a great deal of uncertainty over whether the Bank of England will reduce interest rates at its next meeting, after it kicked off a rate-cutting campaign earlier this month in a close-call decision.
A deluge of earnings released earlier Thursday hasn’t really cleared the confusion.
The U.K. economy grew by 0.6% in the second quarter of the year, following on from an expansion of 0.7% in the first quarter, continuing the country’s cautious recession rebound.
However, economic growth was flat in June, a slip from 0.4% growth in the prior month, while both industrial and manufacturing production fell sharply on an annual basis in the same month.
Britain's economy has grown slowly since the COVID-19 pandemic, expanding just 2.3% between the fourth quarter of 2019 and the second quarter of 2024.
5. Crude rises on US rate cut optimism Crude prices rose Thursday, supported by optimism that potential U.S. interest rate cuts will boost economic activity, although gains have been limited by a surprise rise in U.S. stockpiles.
By 04:20 ET, the U.S. crude futures (WTI) climbed 0.3% to $77.19 a barrel, while the Brent contract rose 0.43% to $79.97 a barrel.
Risk sentiment has been on the rise of late as benign inflation data reinforcing expectations the Federal Reserve will cut interest rates next month, likely boosting demand for crude from the world’s largest consumer.
However, both benchmarks fell more than 1% on Wednesday and the gains this session have been limited by data showing U.S. crude inventories rose unexpectedly last week.
U.S. crude oil stockpiles rose by 1.4 million barrels in the week ended Aug. 9, raising concerns about weaker demand ahead as the summer driving season draws to an end.
