Wall Street cools ahead of US inflation data; Luxon’s future hangs in the balance

Stocks on Wall Street cooled ahead of US inflation data as investors continue to second-guess whether the recent rise in oil prices will drive a broader increase in consumer prices and warrant an interest rate hike by the Federal Reserve next month.

Brent crude pared earlier gains having touched US$90 a barrel in the trading session as Pakistan’s defence minister Khawaja Asif said Iran and Oman were close to an agreement on reopening the Strait of Hormuz, even as the US fired on a Panama-flagged vessel that tried to breach the blockade of Iranian ports.

Australian futures are pointing to a soft start to the day across the Tasman, with Commonwealth Bank of Australia’s annual report the big earnings result due following the Reserve Bank of Australia’s warning that house prices need to fall further and Westpac Banking Corp’s soft quarterly mortgage applications reported earlier this week.

And New Zealand prime minister Christopher Luxon’s future is back in focus today with National party MPs in Wellington for an emergency meeting on his leadership, with thinly traded prediction markets easing back from earlier spikes projecting an early exit for the leader.

Mounting pressure

The kiwi dollar traded at 58.80 US cents at 7am in Auckland from 58.92 cents yesterday as investors await the July US consumer price index on Wednesday in Washington, with economists predicting a monthly increase of 0.2%, slowing the annual pace of gains to 2.5%.

“The data could trigger a market reaction if there is an upside or downside surprise,” Bank of New Zealand senior market strategist Jason Wong said in a note. “There is a strong consensus for a 0.2% m/m core CPI print, which would see the annual increase drop to 2.5%. If realised, that would not be seen as a smoking gun for a September Fed rate hike.”

CME Group’s FedWatch tool shows markets are pricing in a 49.9% chance of a hike by the Fed at the September meeting.

Rising oil prices have revived inflation fears around the world with central banks noting the upside risks posed to consumer prices by the elevated fuel prices. Brent crude oil futures were up 1.2% at US$88.79 a barrel, easing from earlier highs as the US and Iran remain at loggerheads in the Middle East amid conflicting reports on whether things are escalating or cooling.

Mediator Pakistan said Iran and Oman were close to reaching an agreement on reopening the Strait of Hormuz, while the Wall Street Journal reported the US fired on a Panama-flagged ship that tried to get through the naval blockade on Iranian ports.

Stocks on Wall Street were broadly weaker, with the S&P 500 down 0.4% in late trading and the tech-heavy Nasdaq Composite falling 0.7%. The Dow Jones Industrial Average slipped 0.3%, with Honeywell International, Alphabet and Nike at the bottom of the blue-chip index.

Trading AI

The Wall Street Journal reported that Anthropic was meeting with potential investors to rally support for an initial public offering, in what’s been a volatile appetite for the artificial intelligence trade.

Separately, Anthropic struck a US$9.1 billion deal for computing capacity with Bitcoin miner Riot Platforms, according to a Bloomberg report.

Meanwhile, OpenAI’s former chief operating officer Brad Lightcap was the latest senior leader to leave the ChatGPT maker, saying he planned to start something new in a post on social media platform X.

And SpaceXAI has started rolling out new software designed to act as a team of AI agents, called Grok Bot, to handle a wide range of work.

Local favourite Rocket Lab pared earlier losses to be up 1% at US$80.87 in late trading after the space company beat analysts’ forecasts as it narrowed its quarterly loss and lifted revenue.

AST SpaceMobile rallied after it reaffirmed its annual revenue outlook, while reporting a wider June quarter loss.

Across the Atlantic, the UK’s FTSE 100 dipped 0.2% and France’s CAC 40 edged down 0.1%, while Germany’s DAX advanced 0.3%.

Australian futures are pointing to a 0.5% decline when trading opens across the Tasman, with major earnings from CBA, insurer Suncorp, employment listings firm Seek and AGL Energy.

The kiwi dollar gave back some of yesterday’s gains against the Aussie, trading at 83.29 Australian cents from 83.59 cents after the RBA kept its cash rate at 4.35%, and governor Michele Bullock said another rate hike was firmly on the table as the central bank grappled with inflationary pressures.

Greg Boland, market strategy consultant at Moomoo, said New Zealand’s S&P/NZX 50 index would be under pressure when trading opens as rising oil prices and the upcoming US inflation data keep investors uncertain.

“Domestically, investors will also be watching developments around Prime Minister Christopher Luxon's leadership, with National MPs due to meet in Wellington this morning,” Boland said in a note.

The Kalshi prediction market is pricing a 23% chance of Luxon announcing his departure before Sept 1, down from 43%, and is pricing a 64% chance of his exit before the Nov 7 election. Meanwhile, the Polymarket prediction market is pricing a 29% chance of Luxon’s exit by Sept 30, having spiked as high as 86% last night. Trading is relatively thin on both platforms.

And The Australian’s DataRoom column is reporting Scales Corp was among bidders for Soul Patts’ Redland Fruit horticulture unit across the Tasman, with bids said to be due in a fortnight.

Reporting by Paul McBeth. Image from Curious News.