Dow Jones futures bounce back ahead of US inflation data for July
- Dow Jones futures recover in the overnight session as both the US and China agree to extend the tariff truce.
- Investors await the US inflation data for July.
- Economists expect the US CPI to have grown at a faster pace.
Dow Jones futures attract significant bids in the overnight session on Tuesday. United States (US) equity futures rebound as both the United States (US) and China have confirmed that they agreed to postpone the tariff truce for 90 days.
During the European trading session, Dow Jones futures trade 0.20% higher to near 44,050. S&P 500 futures add 19 points and rises to near 6,385.
Earlier in the day, the White House reported that President Donald Trump has signed executive orders to extend the tariff truce with Beijing for 90 days as both nations are still struggling to reach an agreement.
Meanwhile, the Chinese Commerce Ministry also stated that it is working towards reducing non-tariff barriers to American companies, and will suspend adding some US firms to its unreliable entity and export control lists for 90 days.
On Monday, Dow Jones closed 0.45% down below 44,000 amid uncertainty surrounding US-China trade talks.
Meanwhile, investors await the US Consumer Price Index (CPI) data for July, which will be published at 12:30 GMT. The US CPI report is expected to show that the impact of tariffs continues to feed into prices.
Economists expect the US headline inflation to have grown at a faster pace of 2.8% on year, against a 2.7% increase in June. In the same period, the core CPI – which excludes volatile food and energy prices – rose by 3.0%, faster than the prior reading of 2.9%.
The inflation data is expected to be limited on market expectations for the Federal Reserve’s (Fed) monetary policy outlook as Federal Open Market Committee (FOMC) members have become more concerned over cooling labor market conditions.
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.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
