U.S. stock index futures higher after inflation report, as Fed decision looms

What’s driving markets

Investors have new inflation numbers to weigh, a day ahead of another Federal Reserve interest rate decision. While stock futures are trimming initial gains off the November data, the futures remain higher going into the market open.

Month over month, the U.S. cost of living increased 0.1%, coming in slightly higher than expectations for no monthly increase.

Year over year, inflation eased to 3.1% from 3.2%, in line with estimates. Core inflation after stripping away food and energy prices increased to 0.3% month over month and stayed unchanged year over year.

The S&P 500 index sits at its best level since March 2022, having rallied 20.4% so far this year, partly on hopes slowing inflation will allow the Federal Reserve to start cutting interest rates in coming months.

The central bank is widely expected to leave borrowing costs unchanged at a range of 5.25% to 5.50% at the conclusion of its two-day meeting on Wednesday.

“Investors are in a holding pattern ahead of a slew of economic data and interest rate decisions and that’s kept market activity pretty subdued,” said Danni Hewson. AJ Bell head of financial analysis.

The European Central Bank and the Bank of England are also expected to stand pat on interest rates following their meetings on Thursday.

“Although no one expects any surprises from central bankers in terms of their decision, it will be their tone and choice of words with the power to send any anticipated Santa rally hurtling in the other direction,” Hewson added.

Traders also will be keeping an eye on a $21 billion auction of 30-year bonds by the U.S. Treasury, due at 1 p.m. Last month’s 30-year auction was not well-received and sparked a spike in yields and volatility in stocks.

Equity investors need to be wary of the CPI data coinciding with bonds giving up some of their recent gains and for yields to reverse higher again, according to Mark Newton, head of technical strategy at Fundstrat,

“Treasury yields look to be starting to turn back higher, and I suspect the CPI report might prove to be the catalyst for TNX
XX:TNX
[the CBOE 10 Year Treasury Note Yield Index index] getting back over 4.30%,” said Newton.

“This would likely prevent stocks from making too much further headway given recent correlation trends.  However,  yields have indeed risen over the last few trading days and stocks thus far have not been affected,” he added.

Companies in focus

• Oracle Corp. shares are more than 9% lower in premarket trading Tuesday after earnings results Monday afternoon missed revenue expectations. Revenue in the fiscal second quarter was $12.94 billion while FactSet consensus was for $13.05 billion.

• Ford Motor Co. shares are edging 0.4% higher ahead of the open on Tuesday, after reports the company is sharply cutting back on electric F-150 Lightning pickup truck production.