What to Watch Out For: Chinese Inflation, Us Futures, and the Artificial Intelligence Division of Arm
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Wall Street appears poised to continue the week with a positive outlook. However, trading ranges are expected to be narrow due to the impending release of crucial inflation data that may influence the market’s short-term trajectory. Arm Holdings is reportedly establishing a new division dedicated to AI chips as Chinese consumer inflation continues to climb. 

In Anticipation of the CPI Release, Market Futures Rise Slightly

U.S. stock futures inched up on Monday, maintaining the recent optimistic sentiment as investors anticipate the release of crucial inflation data that may heavily influence the short-term trajectory of the markets. 

At 04:00 ET (08:00 GMT), the Dow futures contract saw a modest increase of 28 points, or 0.1%. Similarly, S&P 500 futures experienced a slight climb of 6 points, or 0.1%, while Nasdaq 100 futures rose by 36 points, or 0.2%.

The Dow Jones Industrial Average continued its winning streak on Friday, marking its eighth consecutive session of gains. It also recorded its most decisive week of the year, supported by encouraging corporate earnings.

According to data from FactSet, more than 90% of S&P 500 companies had reported results as of Friday, and an impressive 80% of these firms had exceeded expectations.

Nevertheless, the potential for growth may be restricted as investors anticipate the Wednesday unveiling of the April consumer price data.

Experts predict that core inflation is likely to have increased by 3.6% compared to the previous year, marking the smallest rise in more than three years. 

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However, if the inflation reading turns out to be higher than anticipated, any possibility of rate cuts for the remainder of the year will likely be eliminated, leading to a resurgence of market volatility.

In addition, there are numerous Federal Reserve speakers scheduled for this week, including Chair Jerome Powell on Tuesday. 

Arm Establishes a New Division Dedicated to AI Chip Development

Arm Holdings (NASDAQ:ARM) has revealed its intentions to create specialized chips for artificial intelligence, as reported by Nikkei Asia. This move aims to capitalize on the soaring demand for AI-related technologies.

According to the report, the chip designer from the U.K. plans to establish a dedicated division for AI chips. Their goal is to develop a prototype by spring 2025 and subsequently begin mass production in the autumn of the same year, most likely through contract manufacturers.

SoftBank, a Japanese investment holding company (TYO:9984), purchased Arm in 2016 for a staggering $32 billion. Recently, Arm made its debut on the Nasdaq, with SoftBank maintaining a significant 90% ownership.

Arm’s shares have experienced a significant increase of almost 45% year-to-date, thanks to the booming field of AI computing. As a result, its market capitalization now exceeds $113 billion, as reported by LSEG data. 

SoftBank Group reported a quarterly profit on Monday, leading to a reduced loss for the year ending on March 31. The Japanese technology giant’s holdings experienced a modest increase in value due to the increasing excitement surrounding artificial intelligence.

Chinese Consumer Inflation Experiences Another Increase

In April, the Chinese consumer price index inflation continued to increase, indicating a positive trend in domestic demand in the world’s second-largest economy.

The CPI inflation rate increased by 0.3% on a year-on-year basis, surpassing the anticipated 0.1%, as per the data released by the National Bureau of Statistics during the weekend. The reading also showed an improvement compared to the 0.1% increase observed in March.

In April, the month-on-month CPI inflation rate showed improvement, increasing by 0.1% after experiencing a decline of 1% in the previous month.

The reading arrives shortly after significantly stronger-than-anticipated Chinese imports data, suggesting that there is an increase in local demand due to ongoing policy support and stimulus measures. 

However, PPI inflation continued to be a cause for concern, declining by 2.5% in April. This marked the 19th consecutive month of decline, surpassing expectations of 2.3%. The reading experienced a slight improvement after a decrease of 2.8% in the previous month. 

Crude Oil Prices Experience a Slight Increase, With the Focus Now Shifting Towards Inflation Data

Crude prices slightly increased on Friday as traders processed inflation data from China, the largest importer of crude oil in the world. However, market sentiment remained delicate in anticipation of significant U.S. inflation reports scheduled for this week. 

At 04:00 ET, the U.S. crude futures saw a modest increase of 0.4% to reach $78.54 per barrel, while the Brent contract also rose by 0.4% to $83.08 per barrel.

In April, China’s producer price index contracted, indicating a continued lack of business demand. However, consumer prices increased, suggesting a potential recovery in consumer demand.

Oil prices declined slightly from the previous week following disappointing consumer confidence data and predictions of high inflation. These factors have raised concerns about a potential economic slowdown in the largest consumer of fuel worldwide.

Expect narrow trading ranges in the coming days as the market awaits crucial U.S. inflation data. If the numbers turn out to be higher than anticipated, it could dash hopes of interest rate cuts. This, in turn, may negatively impact economic growth and energy consumption in the largest global economy. 

Peter Bergman (MoneyAmped.com)

By Peter Bergman (MoneyAmped.com)

Peter Bergman is an experienced financial writer with a passion for helping people achieve financial freedom. With over a decade of experience, he has written extensively on topics ranging from personal finance to investment strategies, and his work has been featured on MoneyAmped.com and other leading financial websites.

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