Before the US market opened on Friday, stock index futures showed mixed performance. The core Personal Consumption Expenditures (PCE) price index for August recorded an annual rate of 2.7%, the highest since April and in line with market expectations. Short-term interest rate futures in the US rose after the PCE inflation data was released, reflecting increased market expectations for further rate cuts by the Federal Reserve.
As of the latest update, Dow Jones futures were up 0.02%, S&P 500 futures were down 0.04%, and Nasdaq futures were down 0.12%. In Europe, the DAX index rose 0.93%, FTSE 100 fell 0.46%, CAC 40 increased 0.24%, and the Euro Stoxx 50 rose 0.34%.
WTI crude oil increased by 0.38% to $67.93 per barrel, while Brent crude rose by 0.31% to $71.31 per barrel. The MSCI World Index increased by 0.2%, reaching a new high.
The surge in the Chinese market along with expectations for further rate cuts by the Federal Reserve and the European Central Bank (ECB) boosted market risk appetite. Traders will closely monitor the Fed's preferred inflation indicators and consumer demand data for further clues on future rate changes. European bond yields and the euro fell after inflation data from Spain and France came in below expectations, heightening market expectations for more significant ECB rate cuts.
Nataliia Lipikhina, Head of EMEA Equity Strategy at JPMorgan Private Bank, stated, "Over the next 12 months, we remain optimistic about European and US markets. Central banks are cutting rates, but fundamentals remain strong."
Due to lower-than-expected inflation in France and Spain, the euro fell 0.3% against the dollar to $1.1141. The possibility of an ECB rate cut in October has risen to 80%, compared to 20% earlier this week, before the data release. UBS’s Ganesh noted, "The trend of more rate cuts than investors expected is worth positioning for."
Investors are awaiting the release of the Fed's preferred inflation measure, the core personal consumption expenditure (PCE) price index, which is expected to rise slightly by 0.2% month-over-month. Markets are divided on the extent of the Fed's rate cut in November.
US online real estate broker Redfin (RDFN, Financial) reported a surge in mortgage demand following the Fed's monetary easing. The volume of locked-in mortgage rates as of September 23 rose 68% compared to a month earlier. Other indicators also suggest improving demand. According to the report, mortgage purchase applications increased by over 10% monthly, which may boost home sales in the coming weeks. Redfin's homebuyer demand index reached its highest level since May.
Fed Governor Cook expressed her "full support" for last week's 50 basis point rate cut, citing a slowdown in the job market and easing inflation. However, she did not specify how much more monetary easing might be needed in the short term.
Mark Spitznagel, Founder and CIO of Universa Investments, warned that the stock market's "Goldilocks scenario" could end abruptly. He predicted a market "collapse" before the end of the year driven by economic slowdown. The S&P 500 posted 42 record highs in 2024, driven by resilient corporate earnings, Fed rate cuts, and expectations that the US economy will avoid a recession. However, Spitznagel believes that lower borrowing costs will raise investor concerns about stock prices next year.
Key stocks in focus include: - Bristol-Myers Squibb saw a pre-market rise of over 5% after US regulators approved its Cobenfy for schizophrenia treatment. - Scholastic surged nearly 8% pre-market as its Q1 FY25 loss narrowed, and revenue increased. - Toyota fell over 3% pre-market as its global sales in August dropped 3.7%, with a 13.5% decline in China. - Chinese EV stocks rose, with Nio up over 5.5%, XPeng up over 4.8%, Zeekr up over 2.8%, and Li Auto up over 1.5%. - Chinese education stocks gained, with Gaotu up over 7%, TAL Education up over 6%, and New Oriental up over 4%. - Real estate platform stocks Fangdd and Beike continued rising amid reports that Shanghai and Shenzhen plan to lift housing restrictions. - JD.com rose over 4.3% pre-market, nearing a one-year high amid plans to open platforms with Alibaba. - Trip.com rose over 8% pre-market and is set to hit a new high, with its Hong Kong shares up over 12%. - EHang Holdings jumped over 6% pre-market as its EH216-S unmanned eVTOL completed its maiden flight in Brazil.
