U.S. stock index futures edged lower as traders awaited U.S. inflation data to gauge whether the Federal Reserve would opt for a slower pace of rate cuts.
S&P 500 futures fell 0.1%, Nasdaq 100 futures fell 0.2%, and Dow futures were essentially flat. The S&P 500 hit a record high on Wednesday. The yield on the 10-year U.S. Treasury note remained above 4%, near its highest level since late July.
The German DAX rose 0.02%, the UK FTSE 100 fell 0.20%, the French CAC 40 fell 0.11%, and the Euro Stoxx 50 fell 0.04%.
WTI crude oil rose 1.15% to $74.08 a barrel. Brent crude oil rose 1.06% to $77.39 a barrel.
The U.S. Consumer Price Index is expected to show that inflation eased further in September, supporting the view that the Federal Reserve will continue to implement loose monetary policy in the coming months. However, the unexpectedly strong September non-farm data forced traders to reduce their rate cut bets, with many expecting a 25 basis point cut next month.
If the data aligns with market consensus, it is unlikely to have a significant impact on the Federal Reserve's next policy decision in November.
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"Even if core CPI is higher than expected, we do not believe that the September report will change the Federal Open Market Committee's view on the downward trend in inflation," economist Anna Wong wrote in a report on Thursday. She expects a 25 basis point rate cut in November following the 50 basis point rate cut by the Federal Open Market Committee last month.
BNP Paribas Markets 360 strategist Benédicte Lowe said that strong inflation data could change the Federal Reserve's response.
"Given that U.S. stocks are near historical highs and European stocks are near multi-year highs, if inflation picks up from here, the risks are more skewed to the downside," Lowe said.
Bond traders have begun betting on a decline in the U.S. Treasury market, with the upcoming key inflation data expected to provide further clues on the path of the Federal Reserve's monetary policy.Employment data released late last week pushed the bond market lower, raising yields, as investors scaled back bets on the Federal Reserve having to continue aggressive rate cuts this year to prevent a weakening labor market. With concerns about U.S. employment now subsiding, attention will turn to whether consumer prices are under control.
"Inflation 'should be relatively benign, so there should be no surprises,'" said Kim Rupert, an economist at Action Economics. "But that's not to say it won't be a complete surprise; it's clear that if the data comes in higher than expected, it could exacerbate the bearish reaction triggered by the release of the non-farm payrolls report."
According to Pimco, investors who expect central banks in industrialized countries to successfully curb economic growth and avoid a recession can target five-year bonds.
Barclays Research Team published a research report on the minutes of the September FOMC meeting, mentioning that the minutes showed that all FOMC members unanimously believed that a rate cut in September was the appropriate choice. Among them, "the vast majority of members supported" a 50 basis point rate cut, although this is not consistent with the dot plot in the latest Summary of Economic Projections.
The dot plot shows that nearly half of the FOMC members believe that the rate cut this year should not exceed 75 basis points. Additionally, almost all FOMC members indicated that their confidence in achieving the 2% inflation target has increased. They believe that labor market tightness has further eased in recent months, but they also pointed out that the labor market remains solid.
They believe that the risks to the "dual mandate" are roughly balanced. Based on these FOMC minutes, Barclays maintains its previous base forecast that the Federal Reserve will cut rates by 25 basis points in November and December, and will cut rates three more times in 2025, in March, June, and September, each time by 25 basis points, bringing the target range to 3.5 to 3.75% by the end of 2025.
Citadel Securities said that a strong U.S. economy and stubborn inflation will push the Federal Reserve to cut rates only once more for the rest of this year.
"I dare say that there will only be a 25 basis point rate cut for the rest of this year," said Michael de Pass, Global Head of Interest Rate Trading at Citadel Securities, in a television interview. The market "implies that there will still be a 50 basis point rate cut this year. We feel a bit too high, both in terms of basic economic strength and the stickiness of inflation."