Futures advance, dollar extends slide before key inflation data

Bloomberg

US equity-index futures advanced ahead of key inflation data which was expected on Tuesday. Treasury yields dipped and the dollar extended a decline. Contracts on the S&P 500 and Nasdaq 100 climbed about 0.6% each after the S&P completed its best four-day surge since June following robust pre-order data for Apple Inc’s iPhone 14 Pro Max.
The Bloomberg Dollar Spot index declined a third day, the longest losing streak in more than a month, as investors weigh positive signs in the economy against hawkish rhetoric from Federal Reserve policy makers.
The US inflation report is expected to show headline CPI cooled for a second month in August. That’s ignited a debate among market participants about the outlook for monetary policy, with some wagering the Fed could end its tightening cycle sooner. Others warn that the central bank will want more evidence of sustained moderation in price increases, with tighter policy weighing on economic growth and riskier assets.
“It’s way too early to expect the Fed to react to the fact that we’re past peak inflation,” Nannette Hechler-Fayd’Herbe, chief investment officer at Credit Suisse International Wealth Management, told Bloomberg TV. “When you look at S&P 500 we have seen very big support levels from a technical point of view, so I can very well envisage that volatility takes us down to these levels once the market finally realises the Fed will not cut rates as early as 2023.”
Bank of America Corp’s latest survey showed investors are fleeing equities amid the specter of a recession, with allocations to stocks at record lows and cash exposure at all-time highs. The number of investors expecting a recession has reached the highest since May 2020, strategists led by Michael Hartnett wrote in a note on Tuesday.
But JPMorgan Chase & Co said a soft landing is becoming the more likely scenario for the global economy, which will continue to provide tailwinds for risky assets. Recent data pointing to moderating inflation and wage pressures, rebounding growth and stabilising consumer confidence suggest the world will avoid a recession, a team including Marko Kolanovic and Nikolaos Panigirtzoglou wrote.
“The fact is that two consecutive reports showing a sharp deceleration combined with last month’s goldilocks jobs report will be a really encouraging sign and could trigger a broader risk rebound in the markets,” said Craig Erlam, a senior market analyst at Oanda Europe Ltd. “It may not be enough to tip the Fed balance in favor of a more modest 50 basis point rate hike next week but it may slow the pace of tightening thereafter.”
Futures on the S&P 500 rose 0.6% in New York. Futures on the Nasdaq 100 rose 0.6%. Futures on the Dow Jones Industrial Average rose 0.6%. The Stoxx Europe 600 rose 0.4%. The MSCI World index rose 0.2%.
The Bloomberg Dollar Spot Index fell 0.4%. The euro rose 0.5% to $1.0173. The British pound rose 0.3% to $1.1723. The Japanese yen rose 0.5% to 142.15 per dollar. West Texas Intermediate crude rose 1.3% to $88.95 a barrel.