US stock future tumble ahead of crucial CPI data

Markets expect inflation to have eased but may be overpricing Fed cuts.

US equity futures slumped before the release of keenly awaited inflation data that could set the stage for the timing of the Federal Reserve move to interest-rate cuts. Treasuries and the dollar were steady.

Contracts on the rate-sensitive Nasdaq 100 slid 0.6% while those on the S&P 500 fell 0.3%, extending Monday’s decline in the main US stock gauge from a high of near 5,050. Nvidia Corp. dropped 1% in premarket trading.

The inflation report, which is expected to show the first reading below 3% on year-over-year headline inflation since March 2021, may not be enough to justify a more rapid shift to monetary easing. Employment, manufacturing and economic growth in the US have surprised on the upside, proving resilient to the fastest rate increases in a generation.

“Despite expecting CPI to print below 3% later, we still think the market is over-exuberant when it comes to when that first cut comes in,” Grace Peters, head of global investment strategy at JPMorgan Private Bank, said in an interview with Bloomberg TV.

Policy makers continued to message to markets that rate-cut bets have become overblown. Federal Reserve Bank of Richmond President Thomas Barkin Monday warned that US businesses accustomed to raising prices in recent years may continue to fan inflation. The market is overlooking the risk of rate increases following the easing cycle, strategists at Citigroup Inc. warned Monday.

Derivatives markets point to the first fully-priced rate cut in June, with three more to follow in 2024, taking the fed funds rate lower by 1 percentage point by December, according to data compiled by Bloomberg.

Investors are taking a breather after optimism about corporate earnings, driven by a combination of resilient US growth and expected interest-rate cuts, pushed the market to technically overbought territory. Allocation to US equities has risen, with exposure to the tech industry at the highest since August 2020, according to a Bank of America Corp. global survey of fund managers.

Corporate Highlights

Arm Holdings Plc gained in premarket trading, extending a three-day rally that has driven its value up almost 100%, after a blockbuster earnings report last week showed artificial intelligence spending is bolstering sales.
Activist investor Carl Icahn disclosed a 9.91% stake in JetBlue Airways Corp., calling the shares undervalued, and said he’s had talks with management about the possibility of representation on the board.
Michelin rallied after the tiremaker’s earnings and a share buyback announcement.

Key Events This Week

Germany ZEW survey expectations, Tuesday
US CPI, Tuesday
Eurozone industrial production, GDP, Wednesday
BOE Governor Andrew Bailey testifies to House of Lords economic affairs panel, Wednesday
Chicago Fed President Austan Goolsbee speaks, Wednesday
Fed Vice Chair for Supervision Michael Barr speaks, Wednesday
Japan GDP, industrial production, Thursday
US Empire manufacturing, initial jobless claims, industrial production, retail sales, business inventories, Thursday
ECB President Christine Lagarde speaks, Thursday
Atlanta Fed President Raphael Bostic speaks, Thursday
Fed Governor Christopher Waller speaks, Thursday
ECB chief economist Philip Lane speaks, Thursday
US housing starts, PPI, University of Michigan consumer sentiment, Friday
San Francisco Fed President Mary Daly speaks, Friday
Fed Vice Chair for Supervision Michael Barr speaks, Friday
ECB executive board member Isabel Schnabel speaks, Friday