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US futures, Chinese inflation, Arm's AI division - what's moving markets

Published 05/13/2024, 04:12 PM
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Investing.com -- Wall Street looks set to start the week on a positive note, but trading ranges are likely to be tight ahead of the release of key inflation data which could determine the market's near-term direction. Arm Holdings is seen setting up a AI chip division, while Chinese consumer inflation rises once more. 

1. Futures edge higher ahead of key CPI release

U.S. stock futures edged higher Monday, continuing the recent positive tone ahead of the release of key inflation data, which could be the deciding factor in the near-term direction for markets. 

By 04:00 ET (08:00 GMT), the Dow futures contract was 28 points, or 0.1%, higher, S&P 500 futures climbed 6 points, or 0.1%, and Nasdaq 100 futures rose by 36 points, or 0.2%.

The benchmark Dow Jones Industrial Average posted its eighth straight winning session on Friday, as well as its best week of the year, helped by generally positive corporate earnings.

Over 90% of S&P 500 companies have reported results as of Friday, with nearly 80% of firms beating forecasts, according to FactSet data.

However, gains are likely to be limited as investors await the release of the April consumer price data, on Wednesday.

Analysts expect underlying inflation to have risen 3.6% on a year-over-year basis, which would be the smallest increase in over three years. 

But a hotter-than-expected inflation reading would likely price out rate cuts for the rest of the year, reigniting market volatility.

There are also plenty of Fed speakers due this week, including Chair Jerome Powell on Tuesday. 

2. Arm to set up AI chip division

Arm Holdings (NASDAQ:ARM) has announced plans to develop artificial-intelligence chips, according to a report in Nikkei Asia, looking to take advantage of the massive demand for all things AI.

The U.K.-based chip designer will set up an AI chip division and aim to build a prototype by spring 2025, the report said, with mass production, likely to be handled by contract manufacturers, expected to start in the autumn of 2025.

Arm was acquired by the Japanese investment holding company SoftBank (TYO:9984) in 2016 for $32 billion, and was listed on the Nasdaq last year, with SoftBank holding a 90% stake.

The company will bear the initial development costs of the AI chips, which are likely to be hefty, and after a mass-production system has been set up, Arm’s AI chip business could be “spun off and placed under SoftBank,” according to the report.

Arm shares have risen nearly 45% so far this year, benefiting from a surge in AI computing, with its market capitalization standing at over $113 billion, according to LSEG data. 

SoftBank Group swung to a quarterly profit on Monday, resulting in a smaller loss in the year to March 31, as the holdings of the Japanese technology giant saw a limited boost in valuation from growing hype over artificial intelligence. 

3. Chinese consumer inflation grows again

Chinese consumer price index inflation grew for a third straight month in April, suggesting an improvement in domestic demand in the second largest economy in the world.

CPI inflation grew 0.3% year-on-year, more than expectations of 0.1%, data from the National Bureau of Statistics showed over the weekend. The reading also improved from the 0.1% rise seen in March.

The month-on-month CPI inflation rate also improved to 0.1% in April, reversing a decline of 1% in the prior month.

The reading comes just days after substantially stronger-than-expected Chinese imports data, which indicated that local demand was picking up amid continued policy support and stimulus measures. 

But PPI inflation remained a point of weakness, falling 2.5% in April, dropping for a 19th consecutive month, more than expectations of 2.3%. The reading improved slightly from a drop of 2.8% in the prior month. 

4. New China tariffs expected

The Biden administration could announce new China tariffs as soon as this week, targeting industries that are of strategic importance as well as national security areas. 

The full announcement, expected Tuesday, will likely maintain existing tariffs on many Chinese goods set by former President Donald Trump, but will also add new tariffs to semiconductors and solar equipment, as well as hiking electric-vehicle tariffs.

The long-awaited update is expected to see tariffs on Chinese EVs being roughly quadrupled, the Wall Street Journal reported, citing people familiar with the matter. 

The measures could invite retaliation from China at a time of heightened tensions between the world's two biggest economies. Trump's broader imposition of tariffs during his 2017-2021 presidency kicked off a tariff war with China.

5. Crude marginally higher; inflation data in focus

Crude prices edged higher Friday, as traders digested mixed inflation data from China, the world’s biggest crude importer, while sentiment was also fragile ahead of key U.S. inflation readings this week. 

By 04:00 ET, the U.S. crude futures traded 0.4% higher at $78.54 a barrel, while the Brent contract climbed 0.4% to $83.08 per barrel.

China's producer price index contracted in April, suggesting that business demand remained sluggish, but consumer prices rose [see above], signaling a rebound in consumer demand.

Crude prices were nursing mild losses from the prior week after weak readings on U.S. consumer confidence and high inflation projections spurred concerns over an economic cooldown in the world’s biggest fuel consumer.

Trading ranges are likely to be tight ahead of the key U.S. inflation data later this week, as hotter than expected numbers would dampen hopes of interest rate cuts, which could slow growth and crimp energy use in the world's biggest economy. 

 

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