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U.S. equity futures edged higher in early Wednesday trading, while Treasury yields and the dollar held steady, as investors braced for a key July inflation report that could cement the case for a Federal Reserve rate cut next month.
Stocks ended firmly higher yesterday, with the S&P 500 closing at levels seen prior to last week’s global market turmoil, thanks in part to a softer-than-expected reading for factory gate inflation and the ongoing recovery in megacap tech stocks.
An elevated reading of small business optimism from the NFIB’s monthly survey added to the bullish tone, with investors looking to consolidate the S&P 500’s five-day advance through today’s inflation reading.
Economists expect headline price pressures to hold steady at 3%, still well north of the Fed’s 2% target, with core inflation easing to 3.2% on an annual basis.
Fed Chair Jerome Powell is looking for more data to confirm that inflation is moving towards the central bank’s 2% target.
Olivier Douliery/Bloomberg via Getty Images
The CME Group’s FedWatch tool suggests a 52.5% chance of a 50 basis point rate cut from the Fed when it meets next month in Washington, with the odds of a smaller 25 basis point reduction pegged at 47.5%.
Rate traders are also anticipating further cuts over the Fed next three meetings after September, including in January of 2025.
“The CPI data will not stand in the way of rapid Fed easing in order to bolster the slowing economy,” said Ian Shepherdson of Pantheon Macroeconomics.
Benchmark 10-year Treasury note yields were holding at 3.833% heading into the July CPI report, with 2-year notes pegged at 3.929%.
The U.S. dollar index, meanwhile, was marked 0.08% lower at 102.474 against a basket of its global peers.
On Wall Street, stock futures were essentially flat, with the S&P 500 indicated 4 points higher and the Nasdaq set for a 15 point gain. The Dow Jones Industrial Average was also priced for a modest 17 point gain.
Alphabet (GOOGL) shares were a notable early mover, falling 1.1% in premarket trading following a Bloomberg report that the Department of Justice is looking to break up the Google parent following its victory in an antitrust suit last week.
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In Europe, Britain’s FTSE 100 gained 0.38% in London as rate cut bets solidified following a softer-than-expected July inflation report, while the regional Stoxx 600 benchmark edged 0.16% higher in Frankfurt.
Overnight in Asia, the Nikkei 225 finished 0.58% higher in Tokyo while the region-wide MSCI ex-Japan benchmark was marked 0.56% higher into the close of trading.
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