Futures point up; U.S. inflation data ahead this week - what’s moving markets

Investing.com - U.S. stock futures point higher, with markets weighing the likelihood of impending interest rate reductions by the Federal Reserve. Inflation data out of the U.S. looms large this week, particularly as Fed officials grapple with signs of a slowing labor market. Elsewhere, political upheavals in France and Japan could put a limit on investor exhuberance around hopes for Fed cuts, while oil prices surge after a key producer group unveils output hikes than ones earlier this year.

1. Futures inch up

U.S. stock futures ticked higher on Monday, as investors looked ahead to key inflation data later in the week that could sway the trajectory of upcoming Fed interest rate decisions.

By 03:32 ET (07:32 GMT), the S&P 500 futures contract had risen by 13 points, or 0.2%, Nasdaq 100 futures had edged up by 90 points, or 0.4%, and Dow futures had advanced by 65 points, or 0.1%.

The main averages on Wall Street retreated on Friday, following the release of a softer-than-anticipated August nonfarm payrolls which underlined an ongoing slowdown in the American labor market.

Still, the figures all but cemented expectations that the Fed will slash rates by at least 25 basis points at its September 16-17 policy gathering, and even bolstered the case for a half-point reduction from the current range of 4.25% to 4.5%.

Despite the decline at the end of the prior week, the benchmark S&P 500 remains not far from a record peak notched on Thursday. But analysts have noted that September is traditionally weaker for market sentiment, while valuations are at elevated levels. Uncertainty over President Donald Trump’s aggressive tariffs, a recent spike in government bond yields fueled by fiscal worries, and caution around the state of a years-long artificial intelligence boom are also factors potentially impacting how investors will approach the coming days.

2. Inflation data this week

Against this backdrop comes the consumer price index for August, a crucial gauge of inflationary pressures.

Due out on Thursday, the data from the Labor Department’s Bureau of Labor Statistics is anticipated to show that prices grew at a rate of 2.9% in August, accelerating slightly from 2.7% in July.

At that level, the Fed would likely be facing simultaneous threats to both sides of its dual mandate -- maximizing employment and maintaining price stability, defined as a long-run inflation rate of 2%.

This would leave policymakers with the knotty task of addressing a cooling labor market and sticky prices, an economic situation that could threaten to edge into a period of "stagflation" marked by high inflation, tepid growth and elevated unemployment.

So far, Fed officials, including Chair Jerome Powell, have indicated that they are likely to prioritize addressing the labor market’s easing over inflation. A rate cut could in theory spur more investment and hiring, albeit at the risk of fueling price growth.

The Fed is now in a quiet period ahead of its rate decision next week, meaning markets will have to make do with prior comments from officials as they attempt to map out the path of interest rates.

3. French confidence vote

International politics will come to the fore on Monday, when the French government is set to hold a confidence vote on Prime Minister Francois Bayrou’s fiscal plan.

Should a collection of opposition parties vote against the government, as is broadly anticipated, Bayrou would be forced to submit his resignation to French President Emmanuel Macron.

France’s government has set ambitious deficit reduction targets, looking to bring the shortfall down from 4.6% of gross domestic product next year to 2.8% by 2029. In order to meet these goals, a combination of spending cuts and other structural reforms have been proposed that are altogether worth 43.8 billion euros.

But the viability of the plan is a cause of deep uncertainty, as several sections of it -- including a proposed abolition of public holidays -- have drawn fierce resistance from voters.

In the wake of Bayrou’s announcement of the confidence vote last month, French government bond yields soared to their highest since March. Last week, the country’s 30-year sovereign debt yield rose to a level not seen since June 2009. Yields typically move inversely to prices.

4. Japan’s Ishiba resigns

Meanwhile, political instability also increased in Japan over the weekend after Prime Minister Shigeru Ishiba said on Sunday that he will step down as the leader of the Liberal Democratic Party, just weeks after its ruling coalition suffered a crushing defeat in the upper house elections.

Ishiba signaled that his resignation was also after Tokyo had secured a trade deal with the U.S., which will entail relatively lower tariffs on Japanese goods.

But his abrupt resignation now opens the door to a potential leadership struggle in the world’s fourth-largest economy, especially after the LDP lost its majority in the upper house.

The Japanese yen weakened against the U.S. dollar sharply after Ishiba’s departure, but pared back some losses. The Nikkei 225 index in Japan jumped, while the benchmark 10-year Japanese government bond yield was muted.

5. Oil rises

Oil prices surged higher after the OPEC+ production group agreed to raise output at a substantially smaller pace than that seen earlier this year.

At 03:25 ET, Brent futures gained 17% to $66.59 a barrel, and U.S. West Texas Intermediate crude futures rose 1.7% to $62.92 a barrel.

The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, agreed on Sunday to raise production by a cumulative 137,000 barrels per day in October, much lower than monthly hikes of about 555,000 bpd and 411,000 bpd in earlier months.

OPEC+’s latest hike comes after it began steadily raising production earlier this year, as leader Saudi Arabia sought to regain market share to offset deteriorating oil prices.