Stock futures in the U.S. showed a mixed trend early on Tuesday, with declines in bond yields providing support to the market ahead of the upcoming inflation report.
Stock-Index Futures Performance
- S&P 500 futures (ES00) rose by 2 points or 0%, reaching 4446
- Dow Jones Industrial Average futures (YM00) fell by 21 points or 0.1%, reaching 34125
- Nasdaq 100 futures (NQ00) added 14 points or 0.1%, reaching 15201
On Monday, the Dow Jones Industrial Average (DJIA) rose by 210 points or 0.62% to reach 33944. The S&P 500 (SPX) increased by 11 points or 0.24% to reach 4410, while the Nasdaq Composite (COMP) gained 25 points or 0.18% to reach 13685.
In recent sessions, there appears to be an inverse correlation between stocks and implied borrowing costs.
The S&P 500 managed to break its three-day losing streak on Monday as benchmark bond yields retreated from their cycle highs. On Tuesday, with yields further easing, equity index futures are mostly stable in early trading.
According to Henry Allen, strategist at Deutsche Bank, “Markets started the week in a holding pattern, but a rates rally in the U.S emerged as the main theme on Monday that sent the 10-year Treasury yield back beneath 4% again.”
U.S. Yields Decline Ahead of CPI Report
In recent days, there has been a decline in yields due to some dovish tones in U.S. data. This data includes softer household inflation expectations and lower used car prices. Analysts believe that this decline in yields is significant, especially as it comes before the release of the all-important U.S. Consumer Price Index (CPI) report.
The CPI report is expected to show a decrease in headline annual inflation to 3.1%. This is a notable decrease from the multi-decade peak of 9.1% recorded a year earlier. However, core inflation, which excludes volatile items such as energy and food prices, is expected to remain more elevated at 5%.
Interestingly, there is speculation in the market that the Federal Reserve might follow up a rate hike this month with another later in the year. This is because the Federal Reserve is determined to reach its 2% inflation target. Consequently, some analysts suggest that equity bulls might experience a pleasant surprise if this scenario unfolds.
Richard Hunter, head of markets at Interactive Investor, believes that if the CPI report shows weaker than forecasted figures, it could indicate that inflation is moving closer to the Federal Reserve’s target. In turn, this may lead to a brief rally in the market, followed by a change in consensus from two rate hikes to just one more hike for the rest of the year.
It will be interesting to see how the CPI report unfolds and what implications it may have on the market moving forward. Investors and analysts alike will be closely monitoring the results for any potential impact on future Federal Reserve actions.
