Futures rise ahead of inflation data

[June 30, 2023]  (Reuters) - U.S. stock index futures rose on Friday, the final trading day of the second quarter, ahead of key inflation data that could influence investor expectations on how long the Federal Reserve will maintain a tight monetary policy.

Hawkish remarks from Fed Chair Jerome Powell and strong economic data this week boosted bets that the U.S. central bank will continue to raise interest rates, but stock markets were buoyant on signs of strength in the U.S. economy.

"The backdrop for equities is still no recession, inflation is sticky and financial conditions are still loose. So unless some trigger emerges, equities will remain bid," Peter Garnry, head of equity strategy at Saxo Bank, wrote in a morning note.

"Key risks ahead for U.S. equities remain potential expanded export controls on AI chips and the upcoming Q2 earnings season."

Despite a recent streak of losses, the three main U.S. indexes are on course to end June and the second quarter on a high note as investors expect the Fed's aggressive tightening will not derail the U.S. economy.

Meanwhile, artificial intelligence (AI)-inspired frenzy in technology and megacap stocks set the tech-heavy Nasdaq for a near 30% gain in the first half - in what could be its best such performance in 40 years.

The Fed's preferred inflation gauge, the Personal Consumption Expenditure index (PCE) for May, will be released at 8:30 a.m. ET. Economists polled by Reuters expect core rates to remain steady at 4.7%.

Traders were pricing in an 86.8% chance that the Fed will hike rates by 25 basis points to 5.25%-5.50% range in its July meeting, according to CMEGroup's Fedwatch tool, up from roughly 72% a week earlier.

The odds of another 25 bps rate also grew to 26%, from 12% last week.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., June 29, 2023. REUTERS/Brendan McDermid

Meanwhile, Treasury yields continued to rise on bets of further rate hikes, with several parts of the yield curve reaching deeper levels of inversion, a sign that bond investors are increasingly worried about an economic slowdown.

The yield on two-year notes, most reflective of short-term rate expectations, touched highest since early March at 4.93%, while benchmark 10-year yield also jumped to March highs at 3.89%. [US/]

At 5:56 a.m. ET, Dow e-minis were up 75 points, or 0.22%, S&P 500 e-minis were up 14.75 points, or 0.33%, and Nasdaq 100 e-minis were up 75 points, or 0.5%.

Nike Inc fell 3.5% premarket after it forecast first-quarter revenue below Wall Street expectations as cost-conscious consumers in North America cut back on sneaker and sports apparel purchases.

Shares of other footwear makers Foot Locker Inc and Skechers USA slipped 0.1% and 1.1%, respectively.

Apple Inc inched up 0.8% after Citigroup started coverage on the stock with a "buy" rating. If the premarket gains hold, the iPhone maker could hit $3 trillion in market capitalization when markets open.

Carnival Corp rose 3.0% after Jefferies upgraded the cruise operator's stock to "buy" from "hold".

(Reporting by Sruthi Shankar in Bengaluru; Editing by Shinjini Ganguli)

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