On Monday, stock index futures displayed a slight downtrend as investors eagerly awaited pivotal events scheduled for later in the week, particularly the Federal Reserve’s highly anticipated policy decision and the forthcoming release of inflation data. The pre-market movements saw S&P 500 futures dipping by 0.1%, mirroring the slight decline in Nasdaq 100 futures, while Dow futures experienced a slightly larger drop of 0.3%.
Before the trading day commenced, European markets, including France’s CAC-IND, grappled with a 2% decline following the surprise announcement of a snap election. This news had a lingering impact on Wall Street sentiment as traders assessed its potential implications.
Meanwhile, the bond market witnessed some activity, with the 10-year Treasury yield edging up by 1 basis point to 4.46%, while the 2-year yield remained flat at 4.90%. These movements were attributed to the fallout from Friday’s trading session, where Wall Street experienced losses due to the release of a robust May non-farm payrolls report. The stronger-than-expected jobs data led to a surge in Treasury yields and dashed hopes for an imminent rate cut by the Federal Reserve.
A significant event that unfolded on Friday was the official implementation of Nvidia’s 10-1 stock split, which triggered fluctuations in the stock’s price during premarket trading on Monday. This development drew attention from investors as they assessed its potential impact on the broader market.
As the week progressed, investor focus shifted to Wednesday, which promised two major events: the Federal Reserve’s interest rate decision and the release of May’s consumer price index data. Deutsche Bank’s Jim Reid underscored the significance of these events, particularly highlighting the rare occurrence of a U.S. CPI release coinciding with an FOMC meeting. He suggested that the CPI data would likely influence the Fed’s Summary of Economic Projections.
Market analysts anticipated nuanced insights from Fed Chair Jerome Powell’s subsequent press conference, recognizing the potential for his remarks to sway market sentiment either towards a dovish or hawkish stance. Given the uncertainty surrounding these events, investors preferred to maintain optionality in their strategies, expecting little specific guidance at this stage.
Pantheon Macroeconomics weighed in with their forecast, predicting that the Fed would ease rates by a total of 125 basis points throughout the year, with the easing likely to commence in September. This forecast was based on their assessment of a sharp slowdown in the labor market, a key determinant of the Fed’s monetary policy decisions.
Despite a relatively light economic calendar for the day, which included only the results of a $58 billion, 3-year Note Auction, investors remained vigilant, keeping a close eye on unfolding developments as they awaited Wednesday’s significant events with bated breath.