Mike Dolan’s outlook for the day ahead for US and global markets
Wall Street futures have held their ground after the market’s exaggerated reaction to Friday’s sluggish jobs report — with attention now focused on Apple’s new iPhone and Tuesday’s presidential debate.
The August jobs report was slightly weaker than expected, although it was a significant improvement over July. Downward revisions from previous months have tempered the situation.
But the report was neither enough to completely quell concerns about a slowdown and recession next year, nor was it enough to prompt the Federal Reserve to cut interest rates by a remarkable 50 basis points this month.
The Fed’s top policymakers , Christopher Waller and John Williams, both said they expected interest rates to be cut on Sept. 18, with the former even saying the easing cycle “should start early.” But neither of them seemed nervous enough to suggest that 50 basis points more was needed now.
The S&P 500 (.SPX) was down 1.7% at the close and down 4.5% for the week, its worst week since March 2023 and once again highlighting the seasonal decline that typically occurs in September.
Similarly, Asian markets also witnessed a decline on Monday.
However, although the market has reduced the expected size of the Fed’s interest rate cut this month, there is no change in the expectation that the Fed will cut interest rates by 112 basis points before the end of the year, nor is it expected that the Fed will cut interest rates by 235 basis points in the past year.
The 10-year note yield on Friday fell to its lowest level since June last year, while the two-year note yield fell to its lowest since March 2023. Both were slightly stronger on Monday ahead of this week’s auction of $119 billion in 3-, 10- and 30-year notes.
US stock index futures and European shares rose sharply today, marking the start of another busy week – the European Central Bank may cut interest rates for the second time this year on Thursday, Apple will release a new iPhone equipped with artificial intelligence on Monday. And the White House race will be on TV on Tuesday.
The euro, already weak ahead of the ECB’s decision, on Thursday held off some hopes of a third rate cut next month as the ECB expects gross domestic product (GDP) and inflation to fall.
While the Fed is clearly focused on employment rather than inflation under its dual mandate, the August Consumer Price Index (CPI) inflation report due to be released on Wednesday will be key in assessing the extent of persistent inflation.
Under this situation, deflationary pressure from abroad remains strong; last month, China’s producer price index once again recorded a sharp inflation rate of 1.8%, the inflation rate was only 0.6%, which was also lower than expected.
Prices doubled as commodity markets tumbled. Despite Monday’s gain , U.S. crude oil prices remain below $70 a barrel after hitting a 15-month low on Friday, still on track for a sharp decline of more than 20% so far this year.
Inflation expectations in the US market are rapidly fading.
The 10-year “breakeven” inflation scenario for inflation-protected Treasury bonds is currently just 2.04%, the lowest level since January 2021. The two-year rate is just 1.87%, well below the Fed’s 2% target, raising the risk that the Fed could fall well short of that goal.
The New York Federal Reserve will release its survey of household inflation expectations for August on Monday.
Back to politics, the US election is heating up again this week, with Democratic presidential candidate Kamala Harris and Republican rival Donald Trump set to hold their first televised debate on Tuesday.
The stakes remain high as national polls show the two are once again in a tight race after Harris pulled ahead for the nomination.
A New York Times/Siena College poll released Sunday showed the two are effectively tied, with Trump leading Harris by one percentage point — 48%-47%.
The PredictIt betting website also brought them a fierce fight again.
In Europe, former European Central Bank president and Italian Prime Minister Mario Draghi delivered a much-anticipated report on European economic reforms, in which he urged the EU to take a more coordinated approach to industrial policy to keep pace with the United States and China.
In terms of company news, all eyes will be on Apple’s new iPhone range on Monday. Its shares (AAPL.O) were up 1.6% in pre-market trading , with other big tech companies also rising.
The A18 chip for the latest iPhone, which will be launched at Monday’s event, is developed using Arm’s latest V9 chip design, the Financial Times reported on Saturday .
Boeing (BA.N) shares rose 3% in U.S. premarket trading after the aircraft maker reached a tentative agreement with a union in the U.S. Pacific Northwest, ending a potential strike later this week.
Key developments on Monday that could provide further direction for US markets:
*Federal Reserve Bank of New York inflation expectations survey, US employment trends in August, consumer credit in July;
* Apple launched new iPhone series
* US Corporate Profits: Oracle
* U.S. Treasury sells 3-month, 6-month Treasuries
(Paragraph 26 of this story has been corrected to give the date as Monday instead of Friday)
The views expressed are those of the author. They do not reflect the views of Askume News, which is committed to integrity, independence and non-partisanship in accordance with the principles of trust.
