U.S. equity futures advanced for a fifth consecutive session Tuesday, while the dollar eased and Treasury yields steadied ahead of what could be a pivotal reading of domestic inflation for the world’s biggest economy.
Investors are looking for today’s August inflation data to indicate peak price pressures in the U.S. economy, thanks in part to tumbling gas prices and the unravelling of supply chain disruptions.
Economists are looking for a month-on-month decline in consumer price pressures of around 0.1%, taking the annual rate down to around 8.1%, amid a big decline in gas prices — which were down as much as 25% from their early June highs by the end of the month — and falling airfares and used car costs.
So-called core inflation, which strips out volatile food and energy costs, is likely to remain closer to July levels, but there are big differences in terms of analysts’ forecasts following data from the New York Fed yesterday showing a steep decline in consumer price expectations for the coming year.
“The contrast between the numbers for the past two months and the string of big increases since the turn of the year will be striking,” said Ian Shepherdson of Pantheon Macroeconomics. “Still, Fed officials, especially Chair Powell, have made it clear that the need to see a sustained improvement in the monthly core numbers before they are prepared to slow the pace of tightening.”
The Federal Reserve’s resolve in both fighting the impact of the fastest inflation in four decades, as well as its reluctance to believe in moderating CPI levels without “compelling” evidence of a downturn, will likely mean Tuesday’s data has little effect on the size of next week’s interest rate hike.
The CME Group’s FedWatch, in fact, still suggests an 88% chance of a 75 basis point rate hike, the third in succession, with traders pricing in the likelihood of a Fed Funds rate that could top out at 4% by early next year.
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That could be why the dollar index, which tracks the greenback against a basket of its global peers, has fallen so sharply over the past week, as investors see a near-term Fed pivot while central banks in Britain, Europe and elsewhere continue to deliver hawkish rate hike rhetoric.
The dollar index was marked 0.55% lower in the overnight session at 107.734, with 2-year Treasury note yields holding at 3.53%.
A weaker-than-expected auction of $32 billion in new 10-year notes yesterday, however, suggests investors remain uneasy about growth and inflation prospects, as foreign buyers backed away from the sale and overall demand slumped to a multi-month low.
The dollar’s overnight weakness, however, gave overseas markets a lift, with the region-wide MSCI ex-Japan index gaining 0.68% into the close of trading and the Nikkei 225 in Tokyo rising 0.25%. In Europe, the Stoxx 600 benchmark gained 0.2% in early Frankfurt trading.
On Wall Street, futures contracts tied to the S&P 500 are indicating a 31 point opening bell gain while those linked to the Dow Jones Industrial Average are priced for a 230 point advance. Futures linked to the tech-focused Nasdaq are indicating a 95 point move to the upside.
Oracle Corp. (ORCL) shares moved higher after the cloud-focused software group posted weaker-than-expected first quarter earnings but forecast solid near-term revenues.
Peloton Interactive (PTON) shares fell 2.3% after the connected fitness group said co-founders John Foley and Hisao Kushi would leave the group as part of its broader restructuring effort.