Stock Futures Fall, Bonds Rise in Countdown to CPI: Markets Wrap

(Bloomberg) — US stock futures dropped and bonds rose before a key inflation report amid concern the Federal Reserve has waited too long to ease monetary policy.

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Worries over slowing growth in major economies have resurfaced with oil trading below $70 and global bond yields retreating to a two-year low this week. Investors’ attention is on the US consumer price index due later Wednesday — expected to show another month of muted increases — and the Fed policy meeting next week.

“We do think that the downside risks for growth are higher than the upside risks for inflation,” Cameron Dawson, chief investment officer at NewEdge Wealth, said in an interview with Bloomberg TV. “If you look at wage growth, there’s really no signs that wage growth is picking up.”

The closely-watched inflation report later will probably show US consumer prices climbed in August at the slowest pace in more than three years.

The question for policymakers is whether the data warrants an outsized interest rate cut of 50 basis points, or whether a quarter-point interest-rate cut is enough. Traders are fully pricing a smaller cut, while still betting on at least one 50 basis-point Fed rate cut this year — just probably not before the Nov. 5 election.

Market responses to Tuesday’s debate between Vice President Kamala Harris and former President Donald Trump were limited. Betting markets shifted in Harris’ favor, a signal that many expect her candidacy to earn a boost from Tuesday’s proceedings. Her odds of winning the election increased on the betting website PredictIt to 56%, compared with 53% before the debate.

S&P 500 futures slipped 0.3%. The yield on the two-year Treasuries most sensitive to monetary policy fell two basis points to 3.58%. Stocks in renewable energy producers rose, gaining strength from the debate and Harris’ advocacy of green energy.

Meanwhile, Trump’s support of the crypto sector fueled a pullback in the price of Bitcoin, and a gauge of the dollar also retreated.

“Markets may want to wait on new opinion polls in the coming days to take more decisive positions on the election,” ING Groep NV currency strategists including Francesco Pesole wrote in a note to clients. “For now, indications that Harris won this debate, even if by a small margin, can keep a lid on the dollar.”

The threat of far-reaching tariffs is shaping up to be among the biggest risks to markets. While Trump placed tariffs on more than $300 billion of Chinese goods as president and sought to block countries from buying Huawei Technologies Co. equipment for 5G networks, Harris’ stance is lesser known after she joined the ticket late.

“Historically I would have said: don’t waste too much time thinking about a presidential election,” said Ronald Temple, chief strategist at Lazard Asset Management. “But I think it is consequential because you are talking about a huge amounts of tariffs. Right now the market is not pricing a global trade war.”

West Texas Intermediate crude rebounded on Wednesday after plummeting as much as 5% in its previous session. Crude has tumbled by almost a fifth so far this quarter on concerns that slowing growth in the US and China, the leading consumers, will crimp demand at a time of robust and expanding supplies.

Key events this week:

US CPI, Wednesday
Japan PPI, Thursday
ECB rate decision, Thursday
US initial jobless claims, PPI, Thursday
hsu industrial production, Friday
Japan industrial production, Friday
U. Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures fell 0.3% as of 6:43 a.m. New York time
Nasdaq 100 futures fell 0.3%
Futures on the Dow Jones Industrial Average fell 0.4%
The Stoxx Europe 600 rose 0.4%
The MSCI World Index was little changed

Currencies

The Bloomberg Dollar Spot Index fell 0.2%
The euro rose 0.2% to $1.1044
The British pound was unchanged at $1.3080
The Japanese yen rose 0.6% to 141.53 per dollar

Cryptocurrencies

Bitcoin fell 1.8% to $56,536.25
Ether fell 2.7% to $2,314.22

Bonds

The yield on 10-year Treasuries declined two basis points to 3.62%
Germany’s 10-year yield was little changed at 2.13%
Britain’s 10-year yield declined four basis points to 3.78%

Commodities

West Texas Intermediate crude rose 2.7% to $67.51 a barrel
Spot gold rose 0.2% to $2,522.38 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Kristine Aquino.