Expectations for Third Quarter Figures: A Tension between Inflation and Interest Rate Policy

U.S. stock futures showed a subdued trend on Friday as market participants eagerly awaited the start of the third-quarter earnings season. This is due to hotter inflation numbers from September, fueling speculation about a 25-basis-point interest rate cut by the Federal Reserve in November. In pre-market trading, Tesla shares declined by 5.8%. The electric vehicle manufacturer had unveiled its long-awaited robotaxi, but failed to provide concrete details on production increases or addressing regulatory challenges. Later in the day, major financial institutions will present their third-quarter results. The shares of JPMorgan Chase and Wells Fargo lost about 0.2% each ahead of the announcements. Given that the major indices are trading near their record highs and the S&P 500 has risen more than 21% since the beginning of the year, the quarterly figures will show whether the 2024 rally can continue in light of monetary policy uncertainties, geopolitical risks, and the upcoming U.S. presidential election. Wall Street closed slightly down on Thursday after a closely watched consumer price index report showed a stronger-than-expected rise in inflation. However, an increase in jobless claims suggested potential weaknesses in the labor market. Nevertheless, bets on a 25-basis-point rate cut in November remained, despite analysts pointing out that Hurricane Helene and an ongoing strike at Boeing could distort jobless claims data. Michael Brown, Senior Research Strategist at Pepperstone, stated that there is relatively little in the data that could shake the FOMC's confidence in a medium-term return to a 2% inflation target. Traders are pricing in about an 84% chance of a 25-basis-point rate cut at the November meeting and see a small chance of about 16% that there will be no change at this meeting, according to the CME FedWatch. On the other hand, Raphael Bostic, President of the Atlanta Federal Reserve, expressed openness to maintaining rates next month. Additionally, producer price index data and the University of Michigan consumer sentiment survey are on the agenda, as well as speeches from Fed officials Michelle Bowman, Lorie Logan, and Austan Goolsbee throughout the day. At 5:00 a.m. ET, Dow e-minis were down 48 points or 0.11%, U.S. S&P 500 e-minis fell 12 points or 0.21%, and Nasdaq 100 e-minis dropped 69.75 points or 0.34%. U.S.-listed shares of Chinese companies lagged behind as Beijing announced a highly anticipated fiscal stimulus update for Saturday. JD.com lost 3%, Alibaba Group declined by 1.8%, and PDD Holdings fell 2.7%.