Stock futures rise as investors eye upbeat China data

Stock futures pointed to a higher open Monday morning as investors monitored upbeat economic data out of China and awaited key retail sales and earnings results out from major U.S. companies later this week. 

Contracts on the S&P 500, Dow and Nasdaq each pointed to a higher open. The Dow added more than 100 points, or 0.3%, in the early session. Shares of Boeing (BA) led the way higher in the index after the aircraft-maker’s head of commercial airplanes told Bloomberg he was “hopeful” that China would resume orders of the 737 Max soon after over two years of grounding. 

Stronger-than-expected economic data out of China also helped lift traders’ sentiment overall at the start of the week. The world’s second-largest economy saw both retail sales and industrial production unexpectedly accelerate in October over last year, suggesting the economic impact from multiple COVID-19 waves and stay-in-place restrictions was beginning to ease. However, new-home prices in China fell by about 0.25% in October versus September, marking the biggest drop in more than six years as the country’s real estate market came under continued pressure. 

Investors this week are also set to receive new data from the Commerce Department on U.S. retail sales. The report is likely to show a 1.3% month-on-month jump in sales for October after a more sanguine 0.7% rise in September. And retail earnings results from major names including Walmart (WMT), Target (TGT), Home Depot (HD) and Lowe’s (LOW) will offer additional details on the state of the consumer. 

For U.S. stocks, last week marked a brief pause after a record-setting run-up. The S&P 500 posted a weekly decline for the first time in six weeks, but remained within 0.8% of its all-time intraday high as of Friday’s close. The Dow and Nasdaq were also not far off from their own record levels. 

A hotter-than-expected Consumer Price Index (CPI) last week tempered some of investors’ ebullience for equities, and suggested heightened inflationary pressures were stickier than previously expected. The CPI jumped by a greater-than-expected 6.2% in October compared to the prior year, marking the fastest annual rise since 1990. Meanwhile, the latest print on U.S. job openings came in higher-than-expected to a near-record high of more than 10.4 million, and a separate report showed consumer sentiment deteriorated early this month as Americans nervously eyed rising prices. 

The jump in inflation carries implications both for consumers’ personal finances and for monetary policy. 

“The surge in core inflation in October marks the start of a run of big gains, thanks to surging used auto prices, rebounding airline fares, and faster increases in housing costs,” Ian Shepherdson, chief economist for Pantheon Macroeconomics, wrote in a note Monday. “We think core inflation will peak at almost 7% in March, which will pose a serious challenge to the Fed’s benign medium-term view. Chair [Jerome] Powell will have to convince markets that the combination of rocketing payrolls and soaring inflation does not threaten the transitory story, to which he appears still to be committed.” 

Though the Federal Reserve has maintained current inflationary pressures will be temporary, sustained increases of these elevated magnitudes could prompt a quicker-than-previously-expected hike to interest rates, which would in turn impact a variety of asset classes.

“We remain of the view that the Fed will start to hike in September, but a June hike can’t be ruled out. If labor participation shows no sign of life by the March FOMC meeting, we expect the fed to accelerate the taper and then hike in June. This would play badly across all asset markets,” Shepherdson added. “Treasury yields still have to rise, but rising real yields due to strong non-inflationary growth are vastly preferable to rising inflation expectations. High-multiple stocks and loss-making tech would be vulnerable even in the benign scenario, but cyclicals would outperform.” 

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