US Stock Market: Soft Consumer Inflation Reading Should Greenlight Further Strength

U.S. stock index futures are moving higher during the pre-market session, shortly before the release of a key U.S. consumer inflation (CPI) report that could reveal to investors the speed and duration of the Federal Reserve’s future interest rate hikes in its battle to curtail surging prices.

At 11:42 GMT, Blue Chip Dow Jones Industrial Average futures are trading 32,703.00, up 205.00 or +0.63%. The Benchmark S&P 500 Index is at 4,158.00, up 28.00 or +0.68% and the tech-weighted NASDAQ Composite is trading 12912.50, up 89.00 or +0.69%.

The three major indexes are coming off their fourth consecutive session of gains on Monday as traders price in a possible peak in U.S. consumer inflation.

Consumer Inflation Expected to Dip

Economists polled by Reuters forecast that the U.S. consumer price index (CPI) fell 0.1 percent month-on-month in August, after remaining flat in July. They expect a year-on-year reading of 8.1 percent for August, down from 8.5 percent a month earlier.

Core inflation, which excludes energy and food prices, is forecast to have edged up 0.4 percent month-on-month in August, following a reading of 0.3 percent in July.

Today’s CPI report follows yesterday’s report from the New York Fed that signaled lower inflation expectations.

The New York Fed’s Survey of Consumer Expectations, released on Monday, showed that in August Americans expected inflation to be 5.7% one year ahead. That is down from 6.2% in July and the lowest reading since October 2021.

Credit Suisse:  Inflation ‘Collapse’ Will Launch Powerful Market Rally

Credit Suisse experts told CNBC on Monday that they expect the Federal Reserve to pause interest rate hikes sooner than widely expected due to tumbling inflation.

According to the firm’s chief U.S. equity strategist, it will launch a powerful market breakout.

“This is actually what’s being priced into the market broadly,” Jonathan Golub told CNBC’s “Fast Money” on Monday. “Every one of us sees when we go to the gas station that the price of gasoline is down, and oil is down. We see it even with food. So, it really is showing up in the data already. And, that’s a really big potential positive.”

In a new note previewing this week’s August CPI and PPI data, Golub contends the inflation “collapse” will happen over the next 12 to 18 months.

“Futures indicate that Food and Energy prices should fall -5.7% and -11.8% by year end 2023, while Goods inflation has declined from 12.3% to 7.0% since February,” he wrote. “Over the past year, Services and Rents are up less than Headline CPI (5.5% and 5.8% vs. 8.5%).”

Golub expects signs of an inflation breakdown will force the Fed to stop hiking rates. His time frame:  Over the next four to six months.

“The market believes that come the first quarter, if we continue to go on this glide path where things renormalize, that they’re going to either pause or signal that they might pause,” he said. “If they do that the stock market wants to move ahead of it. The stock market is really going to take off.”

Short-Term Outlook

Expect stocks to get a short-term boost if soft CPI data reduces the chances of a 75-basis point rate hike at the Fed’s November 2 policy meeting. Next week’s 75-basis point rate hike has already been discounted in my opinion.