Dow Jones Industrial Average Forecast: DJIA edges lower ahead of US CPI, Disney earnings
- Dow Jones moderates lower on Wednesday as S&P 500, NASDAQ Composite sink.
- DJIA rotating lower on the daily chart with 34,257 a possible target for support.
- Disney will report FQ3 earnings after the close on Wednesday.
- Inflation data from CPI, PPI arrive on Thursday and Friday.
The Dow Jones Industrial Average (DJIA) opened flat on Wednesday, performing much better than both the S&P 500 and the NASDAQ Composite. The latter two both traded lower at the open, especially the growth-heavy NASDAQ. That didn't last, however, and eventually the DJIA index caught up, trading lower during the US session.
The broad equity market in the US is stuttering ahead of significant inflation data that appears later in the week. On Thursday morning, the US Consumer Price Index (CPI) for July arrives, and on its heels the Producer Price Index (PPI) gets released Friday morning. The results of both will help to determine the outlook for interest rate policy at the Federal Reserve’s (Fed) September policy meeting.
Dow Jones Industrial Average News: Market will turn on inflation data
The US Bureau of Labor Statistics is set to release July’s Consumer Price Index data an hour before the market opens on Thursday. Wall Street consensus is projecting core inflation to arrive at 4.7% YoY, a slight improvement from June’s reading of 4.8%. Expectations for July’s monthly core CPI is right in line with June’s rate at 0.2%.
Headline CPI that includes the more volatile food and energy prices is forecast to rise due to elevated Oil prices. The economic indicator is expected to advance from June’s 3% reading to 3.3% on an annual basis in July. West Texas Intermediate (WTI) has climbed from the low $70s to the low $80s over the past month as Saudi Arabia and Russia have extended their production cuts.
Then on Friday the Producer Price Index (PPI) data for July is expected to rise 2.3% YoY, down from 2.4% in June. If either of these inflation readings come in above consensus, it will give the Dow Jones index an excuse to sell off. The market is worried that stubbornly high inflation could force the Federal Reserve’s hand in raising interest rates at its September meeting. At the moment, the odds are better than 80% that the Fed will pause rates in September, per the CME Group’s FedWatch Tool.
Disney to report FQ3 results after Wednesday close
The Walt Disney Company (DIS) has been part of the Dow Jones since 1991 and accounts for a little under 2% of the overall index. The entertainment powerhouse ran into some difficulties during the pandemic, cutting its dividend in the process, and the market has pretty much ignored it for the past year.
Disney – back in the hands of long-time CEO Bob Iger – is expected to report adjusted EPS of $0.99 and GAAP EPS of just $0.05. Revenue is expected to arrive at $22.53 billion.
Iger returned to Disney last November, but in an interview in July he admitted to CNBC that his two-year turnaround plan for the conglomerate was looking more like a four-year phase. The company’s Disney+ and Hulu streaming segments have been popular with consumers but require heavy investment.
“The challenges are greater than I anticipated,” Iger told CNBC.
In remarks he made at the Sun Valley Conference in mid-July after laying off more than 7,000 employees, Iger hinted that Disney’s television assets like ABC, The Disney Channel, FX and National Geographic may be on the chopping block.
Expect executives on the earnings call to address any possible sale of assets. Disney stock has dropped by more than half since its pandemic peak and is down 19% over the past year.
Inflation FAQs
What is inflation?
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
What is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
What is the impact of inflation on foreign exchange?
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
How does inflation influence the price of Gold?
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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Author
Clay Webster
FXStreet
Clay Webster grew up in the US outside Buffalo, New York and Lancaster, Pennsylvania. He began investing after college following the 2008 financial crisis.
