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US stock futures rise ahead of closely watched inflation report

Wall Street stock futures turned higher on Thursday, after six straight sessions of losses, as investors braced themselves for a US inflation report that will be dissected for clues about the future path of monetary policy.

Contracts tracking the broad S&P 500 were up 0.4 per cent by late morning in London, while those tracking the Nasdaq 100 gained 0.2 per cent. Europe’s regional Stoxx 600 struggled for direction, after Hong Kong’s Hang Seng closed 1.9 per cent lower.

Those moves in equities came ahead of the publication of the closely watched US consumer price index reading for September. Economists polled by Reuters have forecast a rise of 8.1 per cent, which would be a slight easing in the annual rate of inflation from 8.3 per cent in August.

Market participants have scrutinised reports on price growth and the state of employment in the world’s largest economy for signs of how far and fast the Fed and its international peers will tighten monetary policy. Fears have intensified this year that rate-setters will turn the screws into a protracted slowdown.

The Fed has already raised borrowing costs by 0.75 percentage points at its past three meetings, taking its benchmark interest rate to a range of 3 to 3.25 per cent. Markets are pricing in expectations of a fourth consecutive increase of similar magnitude.

“This week’s CPI will be the most important catalyst into the November 2 Fed meeting,” JPMorgan said in a note to asset management clients. Another three-quarter-point increase “feels like a foregone conclusion but the following two meetings lack a consensus.”

The Fed said in minutes from its September monetary policy meeting, released late on Wednesday, that the central bank was concerned about doing “too little” to stamp out soaring inflation.

In a reflection of the significance attached to Thursday’s data and its potential to fuel sharp swings in markets, JPMorgan’s prime brokerage unit outlined a range of scenarios based on different readings. They noted that the last CPI reading, which came in 0.2 percentage points above consensus estimates, triggered a daily fall of more than 4 per cent for the S&P.

A reading between 8.1 per cent and 8.3 per cent would, the analysts said, still constitute a negative outcome with the S&P sliding 1.5 to 2 per cent — “potentially characterised by a buyers’ strike.” Any number between 7.9 to 8 per cent “is likely enough to stage a rally”.

Equity and bond markets have come under acute pressure this year, pummelled by rising interest rates and the prospect of monetary policy screws being twisted even further.

Higher borrowing costs have damaged the appeal of more speculative stocks that were winners earlier in the coronavirus pandemic, biting into their projected cash flows, which are typically modelled into the future. The tech-heavy Nasdaq Composite share index has tumbled by a third this year.

US government bonds traded steadily on Thursday ahead of the widely anticipated CPI release. Gilts rallied strongly, in a sign of the Bank of England’s multibillion pound bond-buying programme easing market jitters.

The 30-year UK yield, which was the main focus of the BoE’s emergency intervention to stabilise gilt dealings in late September, slid 0.26 percentage points to 4.63 per cent.

UK bonds have convulsed in recent weeks following the unveiling of Westminster’s “mini” Budget on September 23, which laid out extensive tax cuts to be paid for in large part through borrowing. The historic moves in gilt yields, in turn, sparked a crisis for pension funds that rely on liability-driven investment strategies, pushing them into a vicious cycle of forced asset sales.

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