Futures edge lower ahead of rally-testing inflation data

[July 11, 2024]  (Reuters) - Wall Street futures slipped on Thursday as markets braced for a key U.S. inflation print that could bolster expectations of policy easing from the U.S. Federal Reserve and keep equities on their record-breaking run.

The S&P 500 notched its sixth consecutive record close and the Nasdaq its seventh on Wednesday, boosted by gains in the most heavily weighted stocks as well as shares of semiconductor companies.

AI-chip favorite Nvidia rose 0.8% in premarket trading after closing at a three-week high on Wednesday.

Other megacaps were mixed, with Tesla slipping 0.7%, while Meta Platforms edged 0.10% higher.

Wednesday's rally came as Federal Reserve Chairman Jerome Powell lifted expectations for the central bank to ease policy in September, as markets currently expect. However, Powell was unwilling to conclude inflation was moving sustainably down to the bank's 2% target, reiterating that a rate-cut decision would be reliant on data.

Markets now await June's reading of the Consumer Price Index to see if the numbers will add to Powell's confidence. Economists polled by Reuters forecast U.S. CPI slowed to 3.1% in June from 3.3% in May, on an annual basis, with core inflation expected to remain steady at 3.4%.

"Inflation in May surprised on the downside, we expect today's numbers to pull in the lower direction, thereby supporting our forecast of two Fed cuts in the second half of the year," analysts at SEB Research said in a note.

"Powell said he wanted to see 'more good numbers' before it is possible to cut interest rates. Hopefully, he will get some of them today."

A Wall Street sign is pictured outside the New York Stock Exchange in New York, October 28, 2013. REUTERS/Carlo Allegri/File Photo

Weekly jobless claims data is also on the deck. The Producer Price Inflation report, which is due on Friday, will also be closely watched.

Traders are pricing in a 68% chance of a 25-basis-point rate cut by September. That probability has hovered around 70% for the past week, but is up significantly from under 50% a month ago, according to CME's FedWatch.

Hopes for interest rates to be lowered, continued economic resilience and exuberance around artificial intelligence-linked stocks has kept Wall Street's main indexes at or near record highs this year.

Another key test for the rally begins this week, with the start of the second-quarter corporate earnings season. Big banks are scheduled to report on Friday.

At 5:50 a.m. ET, Dow e-minis were down 39 points, or 0.10%, S&P 500 e-minis were down 4.75 points, or 0.08%, and Nasdaq 100 e-minis were down 16 points, or 0.08%.

Delta Air Lines rose 0.8%, ahead of results, expected before markets open.

Among other single movers, packaged food maker Conagra Brands fell 1.1% ahead of the release of quarterly results.

(Reporting by Lisa Mattackal in Bengaluru; Editing by Pooja Desai)

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