U.S. stock futures rise and bond yields dip as inflation data looms

What’s driving markets

The S&P 500 index broke a three-day losing streak on Monday after benchmark bond yields pulled back from recent highs. Yields eased further early Tuesday, helping equity index futures mostly hold their ground in early action.

“Markets started the week in a holding pattern, but a rates rally in the U.S emerged as the main theme on Monday that sent the 10-year Treasury yield back beneath 4% again,” said Henry Allen, strategist at Deutsche Bank.

“The decline in yields followed some dovish tones in usually second-tier U.S. data [softer household inflation expectations and lower used car prices], which comes ahead of tomorrow’s all-important U.S. CPI print,” Allen added.

The consumer-price index June report is expected to show headline annual inflation falling to 3.1% having hit a multi-decade peak of 9.1% a year before. However, core inflation, which strips out volatile items like energy and food prices, is expected to be more elevated at 5%.

The June inflation print is the last big economic data point before the Federal Reserve’s next meeting on interest rates. The central bank’s Federal Open Market Committee is scheduled to meet in two weeks, on July 25 and 26.

However, with the market starting to price in the possibility that the Federal Reserve may follow up an interest-rate hike this month with another later in the year to lower inflation to its 2% target, there is an opportunity for a pleasant surprise for equity bulls, according to some analysts.

“A weaker than forecast figure could signal that inflation is moving tellingly towards the Fed’s target, which could result in a brief rally if the consensus then changes to one more hike this year as opposed to the two currently in place,” said Richard Hunter, head of markets at Interactive Investor.

Companies in focus

• Amazon
  AMZN,
  +1.48%
  rose as the e-commerce giant began its Prime Day summer sale which actually lasts two days. The tech giant will be hoping for a boost as sales growth, excluding Amazon’s cloud division, was a meager 8% in the most recent quarter, far below the pre-pandemic pace.

• Microsoft Corp.
  MSFT,
  -0.99%
  shares were higher in premarket trading. The company is reportedly planning additional layoffs after it already announced 10,000 layoffs earlier this year.

• Uber Technologies Inc.
  UBER,
  -1.08%
  shares were basically unchanged after reports that its Chief Financial Officer, Nelson Chai, is planning to leave the company though the timing of the exit is undetermined. The exit would be the highest-level exit at the company since it went public in 2019.