Fed ‘jumps’ into fray after major banks Reuters report

A look at the day ahead in US and global markets from Mike Dolan

Even though futures prices had already turned bearish ahead of Thursday’s sticky September inflation report, the prospect of the Federal Reserve skipping another rate cut next month has now become part of the mix.

A worsening miss in US consumer price readings for last month, which saw the annual core inflation rate unexpectedly rise to 3.3%, was partly offset by a rise in weekly jobless claims amid distortions from strikes and recent storms.

But the picture fueled doubts that the Fed will cut again in November, some Fed officials have clearly gone.

Raphael Bostic, the relatively shock head of the Atlanta Fed, told the Wall Street Journal that he was considering a pause until the data fog lifted a bit. “Maybe we should take a break in November. I’m definitely open to that.”

While other Fed officials have indicated that further easing is still in store, futures remain just above 80% for another quarter-point rate cut on Nov. 7.

That meeting comes just two days after the US election – on a Thursday of that week, as it was delayed by a day due to the vote.

The Fed fervently rejects any consideration of the political calendar in its deliberations. But with the race for the White House on a knife’s edge and such critical long-term issues of trade, taxes and immigration at stake, Fed policymakers may not know the final outcome until they decide.

Meanwhile, there’s plenty of data to look at, including another reality check on inflation from later Friday’s producer prices report — a series that contains some critical components of the Fed’s favored PCE inflation gauge.

Annual core PPI inflation is expected to have risen to 2.7% from 2.4% last month, even as headline rates are expected to fall further below 2.0%.

Ahead of that release, 10-year Treasury yields held off at two-month highs after Thursday’s CPI, but two-year yields fell back below 4%. It also fell back from near two-month highs.

With weekend jitters surrounding the Middle East conflict keeping energy markets on edge, oil prices remain relatively subdued at around $75 a barrel. Florida storm damage from Hurricane Milton was being assessed.

Wall Street stocks took just one spectacular hit from fresh uncertainty over rates and inflation, falling slightly from new highs yesterday as the third-quarter earnings season now gets under way.

Stock futures were marginally in the red on Friday, with banks JPMorgan, Bank of New York Mellon (NYSE: ) and Wells Fargo due to report later along with asset manager BlackRock (NYSE: ).

Earnings are estimated to have risen 5.3% from the year-ago quarter, down from a 13.2% gain in the second quarter.

The technology and communications services sectors are expected to have the strongest year-on-year growth, with advances of 12-15%, but the financial sector is expected to lag behind with annual growth of less than 2%.

Elsewhere, markets in Hong Kong were closed for a holiday on Friday, but mainland China’s index fell again ahead of a much-anticipated press conference on Saturday, which is expected to detail fiscal stimulus measures to accompany recent monetary easing by in Beijing.

South Korea’s gain strengthened after the central bank began its easing cycle and delivered what the governor described as a “brutal cut” in interest rates – lowering borrowing costs by a quarter of a point, as expected.

advanced and Europe held the line.

European markets were monitoring the effects of the French budget late Thursday after Prime Minister Michel Barnier outlined plans for 60 billion euros ($66 billion) in spending cuts and tax increases.

The big question is whether the plans can get through a divided parliament, and ratings agency Fitch is due to revise its assessment of France’s sovereign rating later in the day.

French government bonds were flat on Friday and the euro rose against a broadly weaker dollar. The European Central Bank is expected to cut interest rates again next week for the third time this year.

The pound rose slightly on news that Britain’s economy grew in August after two consecutive months of stagnation, providing some relief to Finance Minister Rachel Reeves ahead of the new Labor government’s first budget later this month.

Key developments that should provide more direction for US markets later Friday:

* US producer price inflation in September, University of Michigan sentiment survey in October; Canada Sept employment report; Industrial production in Mexico August

* Dallas Federal Reserve President Lorie Logan, Fed Board Governor Michelle Bowman and Chicago Fed President Austan Goolsbee all speak

* US Corporate Earnings: JPMorgan, Bank of New York Mellon, BlackRock, Wells Fargo, Fastenal (NASDAQ:)

* Ukrainian President Volodymyr Zelenskii meets German Chancellor Olaf Scholz in Berlin. Russian President Vladimir Putin met in Ashgabat with Iranian President Masoud Pezeshkian

(By Mike Dolan; Editing by Christina Fincher; [email protected])