S&P 500 futures strive for 5-day winning streak as traders await CPI report

What’s driving markets

The focus for traders on Thursday will be the September U.S. consumer prices index report, due for release at 8:30 a.m. Eastern.

Investors hope the inflation data will confirm price pressures continue to ease and so support the narrative that the Federal Reserve has finished raising interest rates in this cycle — a scenario that has seen benchmark bond yields fall sharply of late and the stock market rally.

Economists expect headline annual CPI will dip from 3.7% in August to 3.6% last month, and for core inflation, which excludes volatile items such as food and energy, to fall from 4.3% to 4.1%.

The 10-year Treasury yield
BX:TMUBMUSD10Y
has dived more than 30 basis points since hitting a 16-year high around 4.86% on Friday, as numerous Fed officials have suggested there may be little need to hike borrowing costs again this year.

Minutes of the Fed’s September policy meeting, published Wednesday, showed members were “highly uncertain” about the future path of the economy and decided to proceed in a careful meeting-by-meeting approach to interest-rate policy.

“Ahead of this important [CPI] print, markets this week have responded more to central bank speak than the tragic events in the Middle East, but the two combined have provided the perfect conditions for bonds to rally,” said Jim Reid, strategist at Deutsche Bank.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: “The probability of a no rate hike in November jumped above 90% after the Fed minutes, whereas this probability stood at around the 70% level at the beginning of this week. U.S. fed funds futures price in more than 70% for a no hike in December as well, whereas this probability closer to 50/50 a few days ago.”

These shifts have helped push the S&P 500 equity benchmark to a gain of 2.8% over the last four sessions, as investors also eye the start-proper on Friday of the third-quarter corporate earnings season.

Aggregate S&P 500 earnings are forecast to have risen 1.3% from a year ago, according to Tajinder Dhillon, senior research analyst at Refinitiv, who also notes that the market has grown more optimistic about corporate profits of late.

“For the first time in six quarters, earnings growth expectations have risen heading into the quarter (Q3: +0.3 percentage points). The prior six quarters saw an average decline of 4.2 percentage points heading into earnings season.,” Dhillon wrote in a note.

“This sets up another opportunity for Q3 to deliver a better-than-expected quarter if history repeats itself following a very strong earnings surprise rate in Q1 and Q2, which were the highest since 2021,” he added.

Other U.S. economic updates set for release on Thursday include the weekly initial jobless claims report at 8:30 a.m. Boston Fed President Susan Collins will talk about the economic outlook at 4 p.m.