Dow Jones futures remain steady as traders await US CPI data
- US stock futures remain mixed as market caution emerges ahead of the annual inflation data.
- Rising oil prices and Middle East tensions fuel debates over a September rate hike.
- Markets are split on whether the Federal Reserve will raise rates next month.
Dow Jones futures are steady around 53,890 during European hours on Wednesday. Meanwhile, S&P 500 futures gain by 0.18% to trade around 7,760 and Nasdaq 100 futures rise 0.48%, trading near 29,770.
US stock futures showed a mixed performance as investors adopted a cautious stance ahead of a key inflation reading, which is expected to play a critical role in shaping the Federal Reserve’s (Fed) upcoming policy decisions. The annual US inflation rate is projected to slow for a second consecutive month to 3.4% in July, down from 3.5% in June, continuing its retreat from the 2023 high of 4.2% recorded in May. On a month-over-month basis, the Consumer Price Index (CPI) is forecast to tick up by 0.1%, rebounding slightly from June's 0.4% decline.
Uncertainty remains high regarding the Fed's next moves. Markets are divided on whether policymakers will implement a 25-basis-point rate hike in September following their decision to hold rates steady in July. Rising oil prices have added to these hawkish expectations, even as market-based odds shift slightly; data from the CME FedWatch Tool indicates that the probability of a 25-basis-point increase in September recently dipped to nearly 50%, down from over 52% just a day earlier.
Fed path leaves commodities out of favour despite dovish tilt
Strategists at BNY Mellon argue that the policy backdrop offers little comfort for commodity-linked assets, noting that “a hawkish Fed could tighten global financial conditions and hurt commodities; but if the Fed is right to be dovish, as suggested by the July payrolls report, the weaker growth backdrop is also unsupportive.” In their view, the combination of potential policy tightening on one side and softer activity data on the other means that “either way, institutional investors still see little reason to add commodity exposure.” This reinforces the cautious stance that has emerged across the commodity equity space, with investors reluctant to rebuild positions despite the recent shift in Fed rhetoric.
Adding to the market's hesitation are persistent geopolitical uncertainties in the Middle East. Although Pakistan’s defence minister indicated that Washington and Tehran were nearing an agreement regarding the Strait of Hormuz, a sentiment backed by reports of advanced negotiations between Iran and Oman, tensions quickly reignited. Fresh caution swept through global markets after US President Donald Trump insisted that Tehran pay reparations to victims of attacks linked to the Islamic Republic.
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.
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