Futures ease after strong rally; inflation data awaited

[January 09, 2024]  (Reuters) - U.S. stock index futures took a breather on Tuesday following a rally in the previous session, while investors scaled back expectations for an early start to rate cuts ahead of two inflation reports expected this week.

Wall Street had a strong finish on Monday, with the tech-focused Nasdaq surging over 2% to notch its best day since November 2023, and the benchmark S&P 500 drawing close to its highest closing level hit two years ago.

The optimism was driven by a rebound in megacap growth names and semiconductor stocks like Nvidia, which closed at a record high after unveiling new artificial intelligence (AI) components. Nvidia added 0.3% in early premarket trades.

Focus remains on two sets of December inflation reports due later in the week that might offer clues about the Federal Reserve's monetary policy trajectory. Some analysts expect greater attention around producer inflation figures after the recent downturn in crude oil prices.

"We believe core inflation data still suggests the need for a somewhat restrictive monetary policy," UBS analysts wrote.

"With the rate of inflation approaching the 2% Fed target, our base case scenario considers a soft landing in which growth slows to just below trend and the Fed cuts rates by 100 basis points, starting in May."

Market participants see a 58% chance the central bank could slash interest rates by at least 25 basis points (bps) in March, as per the CME Group's FedWatch tool, down from nearly 64% in the previous session, as policymakers continue to push back against hopes of an early start to the easing cycle.

Atlanta Fed President Raphael Bostic, a voting member this year, said on Monday an initial cut could come in the third quarter, while Fed Governor Michelle Bowman retreated from her persistently hawkish view and signaled a willingness to support eventual interest-rate cuts as inflation eases.

People display merchandise for pedestrians around Times Square, in New York, U.S., December 25, 2023. REUTERS/Eduardo Munoz/File Photo

On the day, investors will parse Fed Vice Chair for Supervision Michael Barr's remarks for his perspectives on the central bank's policy path.

Boeing dipped 0.3%, down for the second day as the U.S. National Transportation Safety Board (NTSB) continued its probe into a recent mishap, saying it could not yet tell if the recovered cabin panel had been properly attached to the fuselage.

Carriers like United Airlines, Delta Air Lines and American Airlines slipped between 0.7% and 1.0%.

At 5:49 a.m. ET, Dow e-minis were down 116 points, or 0.31%, S&P 500 e-minis were down 14.75 points, or 0.31%, and Nasdaq 100 e-minis were down 73.5 points, or 0.44%.

Juniper Networks surged 22.6% after a source told Reuters that Hewlett Packard Enterprise was in talks to buy the networking product maker in a $13-billion deal. Hewlett Packard dropped 8.6% after the news.

Netflix dropped 2.0% after brokerage Citigroup downgraded the streaming platform to "neutral" from "buy".

Unity Software rose 2.2% after the videogame software provider said it aims to lay off approximately 25% of its workforce, according to a Reuters report.

(Reporting by Johann M Cherian in Bengaluru; Editing by Pooja Desai)

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