US stock futures were mixed in pre-market trading as government bonds strengthened. This was driven by Eurozone inflation data supporting faster rate cut expectations from the European Central Bank (ECB) and comments from Federal Reserve Chairman Jerome Powell easing concerns about a steep rate cut. Investors remain focused on the forthcoming economic data to better understand the interest rate outlook.
As of reporting time, Dow Jones futures fell 0.26%, S&P 500 futures were down 0.10%, while Nasdaq futures edged up 0.03%. In Europe, Germany's DAX index rose 0.4%, the UK's FTSE 100 increased by 0.47%, France's CAC 40 went up by 0.04%, and the Euro Stoxx 50 gained 0.18%.
The Eurozone's 20-country inflation data showed a slowdown from 2.2% in August to 1.8%, the lowest since mid-2021. Prior national data also came in below expectations, leading ECB President Christine Lagarde to express increased confidence in achieving the 2% inflation target. This has prompted traders to bet on a rate cut in October.
Pepperstone's senior strategist Michael Brown highlighted that the market continues to adjust to the ECB's dovish outlook, with traders increasingly betting on an October rate cut.
Powel emphasized a cautious approach to rate cuts. In contrast, Powell indicated that the Fed might stick to gradual rate cuts of 25 basis points, following last month's substantial 50 basis point cut, as new data bolstered confidence in economic growth and consumer spending. The yield on Germany's 10-year government bonds fell to its lowest since January, and the US 10-year Treasury yield decreased by 6 basis points to 3.74%.
Bowersock Capital Partners' Emily Bowersock Hill suggested the bull market, having passed through a historically weak third quarter, is expected to remain strong through the end of the year, driven by robust corporate earnings, declining interest rates, and ongoing consumer spending. She projected similar conditions for the fourth quarter, with high volatility but ultimately strong performance.
Traders now see a 40% chance of a 50 basis point rate cut by the Fed next month, down from 53% on Friday. They expect a total of 70 basis points in rate cuts this year. Invesco's strategist David Chao noted that global risk assets are likely to perform well through the end of the year given the resilient macroeconomic backdrop and growth.
Market attention is also on non-farm payroll data. Given the Fed's focus on the labor market, Tuesday's August job openings data and September ISM manufacturing survey are key for rate expectations and the US dollar. Friday's non-farm payroll data will offer further insights into the labor market's health.
In commodities, oil prices fell due to weak global demand overshadowing supply concerns and cautious market sentiment over potential disruptions from the Middle East conflict. Brent crude futures dropped 2.3% to $70.03 per barrel, while US WTI crude futures fell 2.5% to $66.46 per barrel.
Pepperstone's Brown remarked that Middle East developments had a relatively minor impact on the market. Spot gold rose 0.5% to around $2645, close to last week's record high of $2685.42, marking a 13% gain from July to September, the best quarterly performance in four years.
Port workers on the US East Coast and Gulf Coast went on strike, potentially impacting the global economy. The affected ports handle half of US trade, disrupting container and automobile shipments but not bulk cargo, military goods, or cruise traffic. JPMorgan estimates the strike could cost the US economy $3.8 to $4.5 billion daily.
Focus Stocks:
Boeing saw pre-market decline by 3%, reportedly considering a new share issuance to raise at least $10 billion. Ford's shares rose 2.3% pre-market after Goldman Sachs upgraded its rating to "buy." Disney's shares fell 0.9% pre-market following Raymond James’ downgrade due to pressures on its theme park business. CVS Health's shares rose 2.0% pre-market on rumors of a potential company split.
