A Look at the Day Ahead in U.S. and Global Markets

By Mike Dolan

Wall Street futures have stabilized following Friday’s volatile market reaction to a less-than-stellar employment report. Investors are now looking ahead to the launch of Apple’s new iPhone and the upcoming presidential candidates’ debate on Tuesday.

The August payrolls report showed modest weakness compared to forecasts, despite an improvement from July. Downward revisions to previous months further weakened the outlook.

However, it wasn’t strong enough to eliminate fears of a slowdown or recession next year, nor weak enough to prompt the Federal Reserve into a significant 50-basis-point interest rate cut this month.

Top Federal Reserve officials Christopher Waller and John Williams indicated expectations for a cut on September 18 but didn’t suggest an immediate need for a 50 bps reduction.

By the end of trading, the S&P 500 was down 1.7%, marking a 4.5% decline for the week, its worst since March 2023, reinforcing the seasonal dip typically seen in September.

Asian markets mirrored this cautious sentiment, slipping early on Monday.

Despite the scaled-back expectations for this month’s rate cut, there’s no change in the forecast of 112 bps of cuts by year-end, nor the expected 235 bps over the next 12 months.

Ten-year Treasury yields reached their lowest point since June of the previous year, while two-year yields hit their lowest since March 2023, slightly rising on Monday ahead of $119 billion in Treasury auctions for various maturities.

U.S. stock futures and European markets have rebounded ahead of a busy week, including a likely second rate cut from the European Central Bank on Thursday, Apple’s new AI-equipped iPhone launch on Monday, and Tuesday’s presidential debate.

The euro weakened as expectations of GDP and inflation forecast cuts by the ECB persisted, possibly leading to a third rate reduction soon.

While the Fed seems to focus on employment over inflation, the August Consumer Price Index (CPI) report on Wednesday will be crucial in assessing ongoing disinflation.

Deflationary pressures from abroad remain significant; China’s annual producer price deflation is at 1.8%, with consumer price inflation just 0.6%, missing forecasts.

Commodity markets reflect these disinflation trends. U.S. crude oil prices are still below $70 per barrel, following a 15-month low last Friday, and showing over 20% year-on-year declines.

Market inflation expectations are diminishing rapidly. The 10-year ‘breakeven’ inflation rate is now at just 2.04%, the lowest since January 2021, while the two-year equivalent is at 1.87%, well under the Fed’s 2% target.

The New York Fed will publish its August survey on household inflation expectations later today.

On the political front, the U.S. election race is heating up, with the first televised debate between Democratic candidate Kamala Harris and Republican Donald Trump scheduled for Tuesday. Recent polls show them effectively tied.

In Europe, former ECB chief and Italian Prime Minister Mario Draghi has called for coordinated industrial policies and investment within the EU to match the U.S. and China’s pace.

In corporate news, all eyes will be on Apple’s new iPhone series announced later today. Its stock was expected to rise by 1.6% ahead of the market opening, in line with most Big Tech stocks.

The Financial Times reported that the new iPhone’s A18 chip, set to be unveiled today, was developed using Arm’s newest V9 chip design.

Additionally, Boeing shares rose 3% in premarket trading after reaching a tentative agreement with a union in the Pacific Northwest, potentially avoiding a damaging strike.

Key Developments to Watch on Monday:

• New York Fed’s inflation expectations survey
• U.S. August employment trends
• July consumer credit
• Mexico August inflation
• Apple unveils new iPhone series
• U.S. corporate earnings: Oracle
• U.S. Treasury sells 3- and 6-month bills

(This story has been corrected to fix the day to Monday, not Friday, in paragraph 26)

(By Mike Dolan, editing by Emelia Sithole-Matarise; mike.dolan@thomsonreuters.com)