U.S. stock index futures rose on Tuesday during quiet trading in anticipation of key inflation data, which could pave the way for a Federal Reserve rate cut in September.
Wall Street’s major indexes showed some volatility on Monday as investors appeared reluctant to commit ahead of the inflation data, especially after last week’s spike in volatility.
The Dow Jones index lost about 140 points, or 0.4%, while the S&P 500 index ended flat, and the tech-heavy NASDAQ Composite index gained 0.2%.
CPI inflation is awaited for further clues regarding rate cuts
This week, the focus will be on the latest U.S. inflation numbers, starting with Tuesday’s Producer Price Index and the Consumer Price Index on Wednesday, for more signals on the U.S. economy.
The PPI is expected to rise 0.2% month-over-month in July, which would mean a 2.3% year-over-year increase, down from 2.6% last month.
The core figure, which excludes volatile food and energy components, is also expected to increase by 0.2% month-over-month, down from 0.4% in June, with an annual rise of 2.7%, down from 3.0%.
Investors will be looking at the data to determine what the Federal Reserve will do at its meeting next month.
Traders are currently torn between a 25 basis point cut and a 50 basis point cut, and any signs of cooling inflation could increase the likelihood of a larger cut.
At the end of last month, the Federal Reserve kept the policy rate in the 5.25%-5.50% range it has maintained for more than a year, although it stressed that a rate cut could be triggered in September if inflation continues to cool.
According to UBS analysts, fears of an imminent economic recession appear exaggerated.
The analysts’ report notes that despite recent market volatility and increased concerns about a possible recession, fundamentals remain sound.
Analysts also expect the Fed to cut rates by 100 basis points over the remainder of the year, double its previous forecast, as it seeks to protect the labor market. However, recession risks appear exaggerated in the analysts’ view, as household finances remain on solid footing.
Retailer results due out this week
Although the second-quarter earnings season is mostly over, this week will bring results from major retailers Home Depot (HD) and Walmart (WMT).
Both will provide further signals on the strength of consumer spending, which, in turn, influences estimates of inflation and the economy.
The strength of consumer spending has become the mainstay of inflation in the U.S. in 2024, despite pressure from high interest rates.
Crude oil breaks its upward streak
Oil prices fell on Tuesday, ending a five-day winning streak, as traders took profits amid fears over demand growth this year.
The Organization of the Petroleum Exporting Countries on Monday cut its global demand forecast for 2024, the first cut since July 2023, following growing signs that demand in China has fallen short of estimates.
