US futures steady as CPI data is awaited

U.S. equity futures traded little changed as traders awaited inflation data for clues on whether policy makers will keep rates higher for longer.

Europe’s Stoxx 600, meanwhile, retreated 0.7% as stagflation concerns mounted. The pound extended declines to a three-month low after the UK economy shrank at the quickest pace in seven months. Crude prices jumped after warnings from the International Energy Agency. 

Markets are looking to US price data on Wednesday that may show a third month of subdued core inflation, bolstering the case for the Federal Reserve to cease rate increases, according to Bloomberg Economics. That contrasts with the challenges faced in Europe as traders ramp up bets the European central bank will hike rates on Thursday amid growing concerns about persistently high inflation, while UK data stoke recession fears.

“All eyes are on US core CPI later today,” said Chetan Seth, a strategist at Nomura Holdings Inc. in Singapore. “With oil up more than 10% in just over two weeks, stock investors would be hoping not to see a punchy inflation reading tonight as it might give support to the theme of higher-for-longer Fed rate.” 

Another tepid advance for prices excluding food and energy of 0.2% in August would probably be more important to Fed officials than an energy-driven rebound in the overall consumer price index, which may have risen 0.6%, Bloomberg economists wrote.

Crude gained after the IEA warned supply cuts by Saudi Arabia and Russia will drive volatility. West Texas Intermediate climbed for a second day and Brent extended gains above $92 per barrel as the IEA said production cuts will create a “significant supply shortfall.” 

Treasury two-year yields, which are more sensitive to Fed policy than longer maturities, stayed above 5%, while their 10-year peers held at 4.29%. The dollar was little changed against its Group-of-10 peers ahead of the CPI numbers.

“US inflation has become predictable and is on the right path — the markets have already assimilated the idea that rates will need to remain high until at least the second half of 2024,” said Susana Cruz, a strategist at Liberum Capital. “In Europe, we see a higher level of uncertainty.”

EUROPEAN WOES

Markets in Europe were looking past the US data to the ECB’s too-close-to-call meeting for Thursday. 

After reports that the ECB’s new economic estimates will show an inflation forecast for 2024 above 3%, traders upped wagers to a 70% chance the central bank will raise rates at the meeting, compared with a 20% probability earlier this month. 

The German two-year yield — among the most sensitive to monetary policy — rose four basis points to 3.17%, the highest level since mid-August. 

The European stock benchmark briefly pared declines, as Volvo Car AB, Renault SA and Volkswagen AG rallied after the European Union said it was launching an investigation into Chinese subsidies for electric vehicles.

In the UK, the pound sank as much as 0.4% against the greenback after data showed the economy shrank at the fastest pace in seven months in July as strikes and wet weather hit activity harder than expected. That may prompt a pause when policy makers decide next week whether to raise interest rates again. 

Elsewhere, Arm Holdings Plc’s long-anticipated initial public offering is set to price Wednesday in what is set to be the largest listing of the year. Arm is now looking to price the IP0 shares a dollar or more above the $47 to $51 target range, Bloomberg News reported. Key events this week:

• Eurozone industrial production, Wednesday
• UK industrial production, Wednesday
• US CPI, Wednesday
• Tech leaders including Tesla’s Elon Musk and Meta Platforms’ Mark Zuckerberg are set to attend a forum on the future of AI convened by Senator Chuck Schumer, Wednesday
• Japan industrial production, Thursday
• European Central Bank policy meeting and news conference by President Christine Lagarde, Thursday
• US retail sales, PPI, business inventories, initial jobless claims, Thursday
• China property prices, retail sales, industrial production, Friday
• US industrial production, University of Michigan consumer sentiment, Empire Manufacturing index, Friday

Stocks

• The Stoxx Europe 600 fell 0.6% as of 9:43 a.m. London time
• S&P 500 futures fell 0.1%
• Nasdaq 100 futures were little changed
• Futures on the Dow Jones Industrial Average were little changed
• The MSCI Asia Pacific Index fell 0.2%
• The MSCI Emerging Markets Index fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro fell 0.1% to $1.0739
• The Japanese yen fell 0.1% to 147.27 per dollar
• The offshore yuan rose 0.2% to 7.2845 per dollar
• The British pound fell 0.1% to $1.2475

Cryptocurrencies

• Bitcoin fell 0.4% to $25,960.26
• Ether fell 0.3% to $1,593.56

Bonds

• The yield on 10-year Treasuries advanced one basis point to 4.29%
• Germany’s 10-year yield advanced one basis point to 2.66%
• Britain’s 10-year yield declined one basis point to 4.40%

Commodities

• Brent crude rose 0.8% to $92.78 a barrel
• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.