Futures Rise as Market Eyes Potential Size of Fed Rate Cut

Stock futures on Wall Street climbed on Monday amid ongoing discussions regarding the potential scale and timing of Federal Reserve interest rate cuts, driven by a weaker-than-expected jobs report. Boeing reached a tentative agreement with its largest labor union, potentially avoiding a major strike. Meanwhile, Canada’s Alimentation Couche-Tard remains committed to its $38.5 billion bid for Seven & i Holdings, the parent company of 7-Eleven, despite the bid being rejected last week.

1. Futures Trend Upward

U.S. stock futures showed positive movement on Monday after the previous session ended lower, following August’s jobs report that left uncertainty over the extent of potential Federal Reserve interest rate cuts this month. By early morning, the Dow Jones Industrial Average had gained 188 points, or 0.5%, the S&P 500 was up by 29 points, also 0.5%, and the Nasdaq Composite rose by 137 points, or 0.7%.

On Friday, major market indices fell after nonfarm payroll data indicated ongoing softening in the labor market, suggesting the Fed will likely lower borrowing costs during its upcoming meeting on September 17-18. For the week, the S&P 500 and the Dow witnessed their largest weekly declines since March 2023, while the Nasdaq faced its biggest drop since January 2022.

In notable individual stock movements, Broadcom shares fell by 10.4% after its fourth-quarter revenue forecast disappointed investors. Other semiconductor companies also experienced declines.

2. Focus on Potential Fed Rate Cuts

Market expectations for a 25-basis point rate cut from the Fed stood at 73% on Monday, according to the CME Group’s FedWatch Tool. Conversely, the probability of a 50-basis point cut was 27%, having briefly surpassed 50% immediately after the jobs data release.

This uncertainty arises from how the central bank might respond to the latest jobs report. Analysts at ING highlighted that while they predict a 50-basis point reduction, this reflects a low conviction given receding inflation concerns and a desire for the Fed to proactively address labor market weaknesses. On Friday, Fed Governor Christopher Waller stated that "the time has come" to reduce rates but remained flexible regarding the depth and pace of any cuts.

3. Boeing Reaches Tentative Agreement with Union

Boeing has tentatively agreed to a 25% pay increase for its largest labor union, potentially averting a significant strike that could further burden the company. The proposed four-year contract includes commitments to manufacture a new aircraft in the U.S. Pacific Northwest, improved retirement benefits, and an enhancement of the union’s role in ensuring jet quality.

Union leaders, representing over 30,000 workers, have recommended support for the agreement. However, should it be rejected, a two-thirds majority could lead to a strike starting Friday at midnight, intensifying scrutiny on new CEO Kelly Ortberg as he strives to restore the company’s financial health and reputation.

4. Couche-Tard Pursues Seven & i Talks After Rejection

Alimentation Couche-Tard of Canada remains persistent in its attempt to acquire Seven & i Holdings despite the Japanese company’s rejection of its $38.5 billion bid. Couche-Tard expressed confidence that collaborative discussions could lead to a beneficial deal for stakeholders in Seven & i.

The bid, which would represent the largest foreign acquisition of a Japanese firm, was rejected by Seven & i based on concerns that it did not serve the best interests of its shareholders. Seven & i characterized Couche-Tard’s offer as "opportunistically timed" and anticipated potential antitrust challenges in the U.S.

5. Oil Prices See Gains

Oil prices increased on Monday as traders monitored the possible effects of a hurricane in the Gulf of Mexico and assessed the aftermath of last week’s jobs report. Early in the day, the price of a benchmark oil contract rose by 1.6% to $72.17 per barrel, with West Texas Intermediate also up 1.6% at $68.78 per barrel. After a significant drop on Friday, Brent prices were at their lowest since December 2021, while WTI reached its lowest level since June 2023.

The U.S. National Hurricane Center reported that a weather system in the Gulf is likely to develop into a hurricane, raising concerns regarding U.S. refining capabilities in the region. Additionally, the prospect of declining interest rates is contributing to expectations for increased economic activity and higher oil demand.