Futures muted as traders brace for inflation data, Fed verdict

[December 11, 2023]  (Reuters) - U.S. stock index futures were muted on Monday in the run-up to an action-packed week that includes the Federal Reserve's interest rate meeting and inflation data, both of which will test investor optimism about a soft landing for the economy.

The upbeat sentiment around stabilizing interest rates and robust quarterly earnings caused equities to rebound towards the end of the year, with the benchmark S&P 500 within a hailing distance of its highest intra-day level of the year at 4,607.07 points, earlier hit in July.

The S&P 500 and Nasdaq also notched their highest closing since early 2022 on Friday, after data showed non-farm payrolls were higher than expected, underscoring hopes that the world's largest economy could control inflation without slipping into recession.

Focus now shifts to the Consumer Price Index (CPI) data due on Tuesday, which is expected to show headline inflation remaining unchanged in November, and the Fed's last interest rate decision of the year, due on Wednesday.

While money markets have almost fully priced in a rate-hike pause in the upcoming meeting, bets of a rate cut next year have been seeping in, with traders seeing a 43.7% chance of at least a 25-basis-point cut in March 2024 and a 76.2% chance in May, according to the CME Group's FedWatch tool.

However, analysts say markets have pinned their hopes on an overly optimistic scenario.

"We think that the market is right not to expect a rate hike in December, but too many rate cuts are discounted next year in the market," said RBC Wealth Management's Frédérique Carrier, head of investment strategy in the British Isles.

"There are some signs that the labor market might be losing steam a bit, but there isn't that weakness, which in our view, would be necessary for the Fed to be a lot more aggressive in its rate cuts."

Traders gather at the post that trades Alaska Airlines stock on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., December 4, 2023. REUTERS/Brendan McDermid/File Photo

Elsewhere, the European Central Bank and the Bank of England, among others, are also scheduled to deliver their interest rate decisions later this week.

Pressuring futures tracking Nasdaq, megacap stocks, including Alphabet, Tesla and Amazon.com, edged lower between 0.6% and 1% before the bell.

At 5:33 a.m. ET, Dow e-minis were down 13 points, or 0.04%, S&P 500 e-minis were down 4 points, or 0.09%, and Nasdaq 100 e-minis were down 29.25 points, or 0.18%.

Among other movers, Macy's soared 19.1% in premarket trading after an investor group consisting of Arkhouse Management and Brigade Capital made a $5.8 billion offer to take the department store chain private, according to a source familiar with the matter.

Peers Kohl's and Nordstrom also rose about 4.5% and 6.4%, respectively.

Cigna jumped 12.4% after the health insurer ended its attempt to negotiate an acquisition of rival Humana, according to sources, and announced plans to buy back $10 billion worth of shares.

(Reporting by Shristi Achar A and Shashwat Chauhan in Bengaluru; Editing by Pooja Desai)

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