Wall Street Optimism Amid Economic Data

Investing.com — Wall Street looks set to start higher Thursday, although the latest U.S. retail sales data could derail the ongoing optimism. Cisco is set to star after unveiling a restructuring plan, while the U.K. economy showed signs of growth in the second quarter.

1. Economic Data Slate in Spotlight

The U.S. economic data parade continues Thursday, as investors seek clues on the likely pace of interest cuts by the Federal Reserve.

Mild readings for U.S. inflation this week have largely cemented market certainty that the Fed will lower borrowing costs in September for the first time in more than four years, but debate still rages over the size of the cut – the standard 25 basis points, or a more aggressive 50 bps.

The estimated chance of a 50 bps cut fell to 36%, down from 50% just a day earlier, after Wednesday’s CPI release. It had risen to 71% at the start of this month in the wake of the surprisingly weak U.S. payrolls data.

The data slate includes weekly jobless claims and the Philadelphia Fed manufacturing index for August, but the July retail sales release will garner most attention as consumption accounts for about two-thirds of U.S. economic growth.

This is expected to show monthly growth of 0.4%, a slight improvement from the prior month’s flat reading.

The Fed has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range since last July, after hiking its policy rate by 525 basis points since 2022.

2. Futures Gain Ahead of Data Dump

U.S. stock futures rose Thursday amid growing optimism that benign inflation will prompt the Federal Reserve to start cutting interest rates next month.

By 04:20 ET (08:20 GMT), the Dow futures contract was 100 points, or 0.3%, higher, S&P 500 futures climbed 8 points, or 0.1%, and Nasdaq 100 futures rose by 52 points, or 0.3%.

The main Wall Street indices closed higher Wednesday after the July consumer price index showed an annual inflation rate of 2.9%, the lowest since 2021.

The blue-chip Dow Jones Industrial Average rose more than 240 points, or 0.6%, while the broad-based S&P 500 gained 0.4%, and the tech-heavy Nasdaq Composite posted minimal gains.

The July retail sales data will be in the spotlight Thursday as investors look for evidence of the strength of the overall economy. Retail giant Walmart is set to release its earnings, providing more clues over consumer spending strength. Additionally, Ulta Beauty stock soared premarket after Warren Buffett’s Berkshire Hathaway reported a new stake in the company, while Nike stock gained after Bill Ackman’s Pershing Square revealed a position in the retailer.

3. Cisco Gains on Restructuring Plan

Cisco Systems stock gained strongly in extended trading late Wednesday after the networking equipment giant reported better-than-expected fourth-quarter earnings and announced a restructuring plan.

At 08:20 ET, Cisco shares were up over 6% in premarket trading. It reported revenue of $13.64 billion for the fourth quarter ended July 27, compared to an estimate of $13.54 billion. Its adjusted profit per share was 87 cents, compared to the estimate of 85 cents.

Cisco also revealed plans for job cuts, cutting 7% of its global workforce and expecting to incur a pretax charge of up to $1 billion for severance and other one-time termination benefits. The company anticipates recognizing charges of about $700 million to $800 million in the first quarter of fiscal 2025.

“We delivered a strong close to fiscal 2024,” said Chuck Robbins, chair and CEO of Cisco. “In our fourth quarter, we saw steady customer demand with order growth across the business as customers rely on Cisco to connect and protect all aspects of their organizations in the era of AI.”

4. UK Economy Grew 0.6% in Q2

There is also uncertainty over whether the Bank of England will reduce interest rates at its next meeting.

The U.K. economy grew by 0.6% in the second quarter, following a 0.7% expansion in the first quarter, continuing the country’s cautious recession rebound. However, economic growth was flat in June, with a decline in both industrial and manufacturing production on an annual basis.

Britain’s economy has grown slowly since the COVID-19 pandemic, expanding just 2.3% between Q4 2019 and Q2 2024.

5. Crude Rises on US Rate Cut Optimism

Crude prices rose Thursday, supported by optimism that potential U.S. interest rate cuts will boost economic activity; however, gains are limited by a surprise rise in U.S. stockpiles.

By 04:20 ET, U.S. crude futures (WTI) climbed 0.3% to $77.19 a barrel, while the Brent contract rose 0.43% to $79.97 a barrel. Risk sentiment has risen lately, reinforcing expectations the Federal Reserve will cut interest rates next month, likely boosting demand for crude from the world’s largest consumer.

However, both benchmarks fell more than 1% on Wednesday, and gains this session have been limited due to data showing U.S. crude inventories rose unexpectedly last week, with stockpiles increasing by 1.4 million barrels.