Dow Jones, S&P 500, Nasdaq set for mixed open ahead of pivotal CPI report

6.30am: All eyes on tomorrow’s CPI reading

Wall Street is expected to open mixed following the worst week for US equities so far in 2023 and as investors prepare for an inflation report that will play a pivotal role in the Federal Reserve’s monetary policy decisions this year.  

Futures for the Dow Jones Industrial Average fell 0.1% in Monday’s pre-market trading, while those for the broader S&P 500 index gained 0.1% and contracts for the Nasdaq-100 added 0.4%.

US indices ended mixed on Friday as companies continued to report quarterly earnings and after a revision to last year’s Consumer Price Index (CPI) inflation readings showed the trend in core CPI hasn’t fallen as much as expected. An uptick in used car prices may also result in higher-than-expected CPI inflation for January. 

The Dow closed 0.5% up at 33,869 and the S&P 500 inched 0.2% higher to 4,090, but the Nasdaq slipped 0.6% to 11,718 for its first negative week of the year.

“US equities recorded their worst week since the year started,” commented Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “Hawkish comments from many Federal Reserve (Fed) members hammers sentiment, as stress mounts before the much-important US CPI data due Tuesday.” 

The CPI is expected to show headline inflation for January eased to 6.2% from the 6.5% annual increase registered in December. Headline inflation is expected to show a month-over-month rise of 0.5%.

Core inflation, which excludes volatile food and energy prices, is expected to slow to an annual rate of 5.4%, down from 5.7% in December

“If US inflation hasn’t eased or eased enough, or God forbid, ticked unexpectedly higher on yearly basis, we could rapidly see the post-NFP (non-farm payroll) optimism, and the pricing on the goldilocks scenario to leave its place to fear and chaos,” Ozkardeskaya added. 

Mounting pessimism that the Fed still has some way to go before peak interest rates are reached is taking a toll on Wall Street, added James Hughes, chief market analyst at Scope Markets

“There’s concern that with the improving outlooks for growth, the FOMC can’t afford to ease off too quickly here, although the inflation data that’s due for release on Tuesday plus the retail sales data on Wednesday could well provide some useful insight as to just how strong demand is,” Hughes said.

“Earnings season continues but releases in the coming hours are fairly low key, but this picks up as the week progresses with highlights set to include Airbnb (NASDAQ:ABNB) and Coca-Cola tomorrow, then Kraft Heinz on Wednesday,” he added.