Introduction to the Stock Market
The U.S. stock market is poised to start the week on a positive note, with futures indicating a rally ahead of a significant week. This comes after Friday’s disappointing jobs report, which heightened recession fears and increased the likelihood of a rate cut by the Federal Reserve later this month. However, if inflation surprises in the coming week, it could cast doubt on the rate cut.
Current Market Trends
Stock futures gained momentum on Sunday evening as investors prepared for fresh inflation data and political turmoil overseas that could impact the bond market. The yield on the 10-year Treasury was flat at 4.091%, while the U.S. dollar was up 0.05% against the euro and 0.65% against the yen. This followed Japan’s prime minister announcing his resignation after less than a year in office, which could lead to more political turmoil in the world’s fourth-largest economy.
Impact of Global Events on the Market
The resignation of Japan’s prime minister and the potential for more fiscal discipline or profligacy under the next leader could rattle the bond market. Similarly, France’s government faces a confidence vote on Monday, which could lead to more gridlock and higher bond yields. U.S. oil prices rose 0.32% to $62.07 per barrel, and Brent crude added 0.40% to $65.76, despite key OPEC+ members agreeing on another production hike.
Recession Fears and Job Market
Recession fears were fueled by the latest jobs data, with Moody’s Analytics chief economist Mark Zandi pointing out that most U.S. industries have been shedding jobs rather than adding them for several months. This labor market weakness has basically guaranteed a Fed rate cut, with Wall Street certain that some kind of cut is coming when the central bank announces its policy decision on September 17.
Upcoming Economic Data
The only thing that could put a rate cut in doubt is a surprise spike in inflation. Investors will get crucial updates on inflation with the release of the producer price index for August on Wednesday and the consumer price index on Thursday. Economists expect a 0.3% month-over-month increase in the producer price index and a 0.3% gain in the consumer price index.
Federal Reserve and Interest Rates
The Federal Reserve is expected to cut interest rates later this month, with a 92% probability of a quarter-point cut priced in. However, the effect of President Donald Trump’s tariffs on inflation has been more muted than anticipated, and investors will be watching the upcoming inflation data closely. Fed Governor Lisa Cook is also fighting Trump’s attempt to fire her, and a judge’s ruling in the coming week could clarify whether she will be able to participate in the FOMC meeting.
Conclusion
In conclusion, the U.S. stock market is poised to start the week on a positive note, despite recession fears and political turmoil overseas. The upcoming inflation data and Federal Reserve meeting will be closely watched by investors, and any surprises could impact the market. With the likelihood of a rate cut later this month, investors will be looking for any signs of inflation or changes in the labor market that could affect the Fed’s decision.
