US Futures Slide as Inflation Countdown Begins: Markets Wrap

(Bloomberg) — U.S. stock futures started a data-packed week lower ahead of a key report on U.S. inflation that will test bull market resolve on bets that the Federal Reserve is close to shifting toward an easier policy.

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Contracts in the interest rate-sensitive, technology-heavy Nasdaq 100 index fell 0.5% while contracts in the S&P 500 index fell 0.4%. The 10-year Treasury yield was trading little changed near 4%.

Tuesday's US CPI report is a key piece of the puzzle toward completing the backdrop for the Federal Reserve to begin cutting interest rates mid-year. Policy makers' comments last week seemed overly dovish, and swaps traders see a June rate cut as a virtual lock-in, even with another set of strong payrolls data on Friday.

A stronger-than-expected jump in consumer prices could derail rallies in stocks and bonds fueled by confidence that the Fed is on the cusp of pulling inflation back to its target. This was the case last month, when CPI data sparked a market sell-off. The impact may be stronger this time because it is the last major piece of economic data before the Fed's March 20 meeting.

“The bottom line is that a lot of people are busy trying to predict or anticipate the Fed's first rate cut,” said Mark Dowding, IT director at RBC BlueBay Asset Management. “I still see this as being a few months away.”

Read: Traders alert for hotter-than-expected inflation print

Further moderation in US prices would support the low inflation narrative that remains broadly intact, despite a decline in the number of Fed interest rate cuts expected this year. Core CPI prices are expected to rise 0.3% in February from the previous month, and 3.7% year-on-year – which would be the smallest annual rise since April 2021.

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Recent comments from policymakers have supported the case for easing. The S&P 500 rose 1% on Thursday when Federal Reserve Chair Jerome Powell said in Senate testimony that the central bank was “not far off” from being ready to cut interest rates. On the same day, Powell's European counterpart Christine Lagarde said the ECB could start cutting interest rates as soon as June, sending the Stoxx Europe 600 index up 1.3%.

The improving US economy and slowing inflation rate make the bears' situation even more difficult. Large positions, stretched technicals and shaky earnings outlook are among the few remaining arguments.

“The lack of a growth reversal in the second half could act as a headwind for economically sensitive areas of the market, especially if the Fed holds back,” says Michael Wilson, chief US equity strategist at Morgan Stanley, a senior US equity strategist at Morgan Stanley. about lowering interest rates for a longer period than expected. The most prominent bearish voices on Wall Street. His 2024 target for the S&P 500 is 4,500, which would mean a roughly 12% decline from Friday's close.

Nvidia Corp.'s premarket trading pointed to further losses after the stock fell more than 5% on Friday. Cryptocurrency exchange Coinbase Global Inc.'s prices rose. By 5%, as the price of Bitcoin exceeded $71,000 for the first time.

In currencies, the Japanese yen continued its rapid rise amid expectations that the Bank of Japan is about to start raising interest rates. The dollar gauge is headed for its seventh day of losses, its longest losing streak in nearly four years.

Read: The world's last experiment with negative interest rates is coming to an end in Japan

In commodities, oil posted losses ahead of reports from OPEC and the International Energy Agency this week that may provide clues about the demand outlook. Gold is hovering near a record level in the Federal Reserve's forecasts.

Main events this week:

• CPI reports for Argentina, Brazil, Germany, India and the United States on Tuesday

• UK Unemployment Claims, Unemployment, Tuesday

• Japanese Producer Price Index, Tuesday

• Industrial production in India, Tuesday

• Mexico's international reserves, industrial production, Tuesday

• Philippine Trade, Tuesday

• Turkish industrial production, current account, Tuesday

• European Union finance ministers meet in Brussels on Tuesday

• European Central Bank Governing Council member Robert Holzmann speaks on Tuesday

• Eurozone, UK industrial production, Wednesday

• India Trade, Wednesday

• Unemployment rate in South Korea, Wednesday

• European Central Bank Governing Council member Yannis Stournaras speaks on Wednesday

• The First Deputy Governor of the Riksbank and the Deputy Governor speak on Wednesday

• Saudi Arabia, Spanish CPI, Thursday

• US Producer Price Index, Retail Sales, Initial Jobless Claims, Business Inventories, Thursday

• Australian Treasurer Jim Chalmers delivers a pre-budget speech on Thursday

• Housing starts in Canada on Friday

• Real estate prices in China today, Friday

• France, Italy, Poland Consumer Price Index, Friday

• Trade in Indonesia, Friday

• Japan Higher Education Index, Friday

• New Zealand PMI, Friday

• Philippines Foreign Remittances, Friday

• Sri Lanka GDP

• US Industrial Production, Consumer Confidence from the University of Michigan, Empire Manufacturing, Friday

• The largest union federation in Japan announces the results of annual wage negotiations, Friday

Some key movements in the markets:

Stores

• S&P 500 futures were down 0.4% as of 8:06 a.m. New York time.

• Nasdaq 100 futures fell 0.5%

• Dow Jones Industrial Average futures fell 0.3%

• The Stoxx Europe 600 index fell by 0.5%.

• MSCI World Index fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%.

• There was little change in the euro at $1.0943

• There was little change in the pound sterling at $1.2850

• The Japanese yen rose 0.3 percent to 146.63 yen to the dollar

Digital currencies

• Bitcoin rose 3.4% to $71,782.26

• Ethereum rose 3.5% to $4,042.35

Bonds

• The yield on 10-year Treasury bonds was little changed at 4.07%.

• The yield on 10-year German bonds was little changed at 2.26%.

• The yield on British 10-year bonds fell by three basis points to 3.95%.

Goods

This story was produced with assistance from Bloomberg Automation.

-With assistance from Michael Msika, Farah El-Bahrawy and Divya Patel.

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