U.S. stock futures declined while bond prices climbed ahead of a crucial inflation report, raising concerns that the Federal Reserve may have delayed easing monetary policy for too long. Amid fresh fears of decelerating economic growth, global bond yields hit two-year lows, with oil trading below $70 a barrel.
Investors are now turning their attention to the U.S. Consumer Price Index (CPI) report, due to be released on Wednesday. Expectations are for another month of restrained inflation growth, ahead of the Fed’s policy meeting next week.
Cameron Dawson, Chief Investment Officer at NewEdge Wealth, highlighted the risks, stating, “The downside risks to growth now outweigh the risks of inflation.” Dawson also pointed out the absence of any significant pickup in wage growth, which further suggests muted inflationary pressure.
Analysts anticipate the CPI report will show consumer prices in the U.S. rose in August at their slowest pace in over three years. Policymakers must decide if this data supports a larger-than-expected interest rate cut of 50 basis points or if a quarter-point cut will suffice. Markets have already priced in a smaller cut, but traders are still betting on at least one 50 basis-point cut by the end of the year—though likely not before the November 5 election.
Market reactions following Tuesday’s debate between Vice President Kamala Harris and former President Donald Trump were subdued. Betting markets indicated a slight shift in Harris’ favor, with PredictIt showing her odds of winning rising to 56%, up from 53% before the debate.
In premarket trading, S&P 500 futures fell 0.3%, while the yield on two-year Treasuries—sensitive to monetary policy—declined by two basis points to 3.58%. Stocks in renewable energy producers gained ground following Harris’ support for green energy initiatives during the debate. Conversely, Trump’s advocacy for the crypto sector led to a drop in Bitcoin prices, and the U.S. dollar also pulled back.
“Markets may prefer to wait for more opinion polls over the coming days before making decisive bets on the election outcome,” commented Francesco Pesole, currency strategist at ING Groep NV. He suggested that Harris’ apparent victory in the debate might keep downward pressure on the dollar for now.
The possibility of new tariffs poses one of the largest risks to markets. Trump, as president, imposed tariffs on over $300 billion worth of Chinese goods and restricted Huawei Technologies Co.’s involvement in 5G networks. It’s unclear where Harris stands on trade issues, given her late entry into the ticket.
Ronald Temple, Chief Strategist at Lazard Asset Management, highlighted the stakes, stating, “Normally, I would say elections don’t matter much for markets, but with tariffs and global trade risks at play, this one is different. Markets aren’t yet pricing in a full-blown trade war.”
West Texas Intermediate crude rebounded on Wednesday, recovering some of its 5% loss from the prior session. Oil has dropped nearly 20% this quarter, driven by worries that slowdowns in the U.S. and China, the world’s two largest consumers, will weaken demand amid rising supply.
