Dow Jones futures trade calmly ahead of US banks’ Q2 earnings, inflation data
- Dow Jones futures flatten ahead of US banks’ Q2 results and the US CPI data for June.
- US midcap stocks are outperforming blue-chip companies ahead of US banks' quarterly results.
- The Fed could support keeping interest rates at their current levels if the inflation data turns out hotter-than-expected.
Dow Jones futures trade quietly during the European trading session on Tuesday as investors await quarterly results from a number of United States (US) commercial banks and the Consumer Price Index (CPI) data for June, which will be published at 12:30 GMT.
At the time of writing, Dow Jones futures trade flat around 44,470. S&P 500 futures jump 0.45% to near 6,300. Significant gains in the 500-stock basket suggest strong demand for shares, which are moderately volatile.
US banking giants: JPMorgan Chase, Citigroup, and Wells Fargo are scheduled to release their second-quarter earnings for the current year. According to IG Markets, Citigroup is expected to show a slight increase in revenues, while Wells Fargo is anticipated to post flat numbers. Meanwhile, JPMorgan Chase is expected to report a decline in overall revenues.
On the data front, US CPI data will be the major highlight as investors will gauge cues about how much the latest sectoral tariffs imposed by President Donald Trump are influencing inflationary pressures.
As measured by the CPI, the US headline inflation is expected to have grown by 2.7% on year, faster than 2.4% in May. In the same period, the core CPI – which excludes volatile food and energy prices – rose at a faster pace of 3%, compared to the prior release of 2.8%. On month, both headline and the core CPI are estimated to have risen 0.3%, faster than the former reading of 0.1%.
Signs of accelerating price pressures would discourage Federal Reserve (Fed) officials from supporting interest rate cuts in the near term. This would be in contrast with President Trump’s ambitions, who has criticized the Fed several times, especially Chairman Jerome Powell, for not bringing interest rates down.
On Monday, US President Trump criticized Fed Powell again for maintaining a restrictive monetary policy stance, stating the interest rates should be reduced to 1% or below. "We should be at 1%. We should be less than 1%," Trump said, Fox Business reported.
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.
