Scott Olson
Stock index futures were slightly lower Wednesday, but direction will be dictated by the August inflation numbers.
S&P futures (SPX), Nasdaq 100 futures (NDX:IND) and Dow futures (INDU) were off -0.1% or less.
“We are in an inflation no-man’s land now,” strategist Ben Laidler wrote. There are “mixed messages of rising headline inflation but easing underlying pressure. This may take a few frustrating months to resolve, with the final fall toward Fed’s 2% target the hardest.”
The 10-year Treasury yield (US10Y) rose 4 basis points to 4.31% and the 2-year yield (US2Y) rose 3 basis points to 5.03%.
Two-year inflation expectations hit the highest level since late April in the previous session at 2.24%, according to Deutsche Bank.
The August CPI hits before the bell. Economists expected a 0.6% monthly rise in the headline CPI, driven by energy prices. The core CPI is expected to post another rise close to 0.2%.
The market is still pricing in a more-than-90% chance the Fed holds at its meeting next week. But November’s meeting is more of a coin toss, with odds just below 50% for a hike.
“US August consumer price inflation is subject to durable goods deflation and profit-led disinflation, but energy prices will add to the headline inflation rate,” UBS’ Paul Donovan wrote. “The details matter.”
“The fictional owners’ equivalent rent price is still pushing up inflation,” he said. “As no one pays this, middle-income homeowners enjoy a lower inflation reality. Regional variations (high inflation in Florida, deflation in Alaska) may be politically important ahead of 2024 elections.”
“The annual report on US median incomes showed US households experienced falling real incomes last year. Credit and savings propped up consumption. Most major economies have had negative real wage growth (hardly a sign of strong worker pay bargaining power).”
See this morning’s biggest stock movers.