Futures subdued as investors focus on economic data, Fed rate clues

By Johann M Cherian and Purvi Agarwal

(Reuters) -U.S. stock index futures were subdued on Wednesday, with investors cautious as they awaited more clues on the health of the economy and the outlook for interest rate cuts after the Federal Reserve kicked off its policy easing cycle a week ago.

The benchmark and the Dow closed at record highs for the second straight time in the previous session, with most of the heavy lifting done by mining stocks after China unveiled a large stimulus package.

However, a weak consumer sentiment report sparked concerns about the labor market’s health among investors who are worried if the Fed’s decision to cut rates by a rare 50 basis points in the previous week was due to a sharp slowdown in the economy.

“There is uncertainty about what the Fed’s main driver now is – bringing inflation to target or stopping a deeper economic slowdown and what that will mean for the direction of rates,” Susannah Streeter, head of money and markets, Hargreaves Lansdown, said in a note.

Odds that the central bank will lower borrowing costs by another 50 basis points at its November meeting have ticked up to 58.1%, from a coin toss earlier in the week, as per the CME Group’s (NASDAQ:) FedWatch Tool. Traders see borrowing costs falling by nearly 79 bps before the year ends, as per LSEG data.

Yield on long-term Treasury bonds ticked up on worries that looser financial conditions could re-ignite inflation. [US/]

At 7:06 a.m. ET, Dow E-minis were up 22 points, or 0.05%, S&P 500 E-minis were down 1 point, or 0.02% and E-minis were down 33.25 points, or 0.16%.

Wall Street’s main indexes have rallied this year on expectations of interest rate cuts and on optimism that artificial intelligence integration could boost corporate profits.

The S&P 500 is also trading at valuations high above longterm averages, and analysts forecast further upside momentum for stocks to be weak.

On the day, data on new home sales for August are expected at 10:00 a.m. ET. However, the next test for markets will be weekly jobless claims and personal consumption expenditure data for August due later in the week.

Remarks from Fed Governor Adriana Kugler, due after markets close, will also be parsed. But the spotlight will remain on Chair Jerome Powell’s speech at the New York Treasury Market Conference on Thursday.

Among major premarket movers, KB Home (NYSE:) fell 7.1% after the homebuilder missed Wall Street expectations for third-quarter profit.

Tyson Foods (NYSE:) lost 1.4% after Piper Sandler downgraded the meatpacker to “underweight” from “neutral”, while Hewlett Packard Enterprise (NYSE:) rose 2.3% after Barclays raised its rating on the stock to “overweight” from “equal-weight”.

U.S.-listed shares of Chinese companies slipped after surging in the previous session. Some analysts flagged that the massive stimulus package the country announced on Tuesday might not immediately spur up weak domestic demand.

Alibaba (NYSE:) lost 2.6%, Li Auto (NASDAQ:) dropped 2.5% and JD (NASDAQ:).com slid 3.8%.