A Quick Shift to Inflation Monitoring By Reuters

LONDON (Reuters) – In a look at the day ahead in U.S. and global markets, we observe that the ongoing U.S. presidential debate is capturing headlines, while the upcoming U.S. inflation figures seem to be somewhat overshadowed, though this may only be temporary.

The August consumer price inflation report, scheduled for release later today, is the last significant data release before the highly anticipated Federal Reserve rate decision on September 18. Markets are currently pricing in a 25 basis point rate cut, with about a 35% chance attributed to a more aggressive 50 basis point cut next week. Therefore, the inflation numbers could significantly influence traders’ rate expectations and, by extension, broader market movements.

Economists surveyed predict a 0.2% increase in both the headline and core consumer price index month-on-month, with the annual headline inflation rate expected to drop to 2.6% in August from 2.9% in July. This would mark the lowest annual inflation reading since March 2021 and could solidify expectations for a moderate rate cut next week, potentially providing support for the dollar.

Deutsche Bank economists are particularly attentive to rental inflation, noting a surprising increase in July and questioning whether this trend will continue.

In the lead-up to the CPI release, market direction seems to be influenced by Tuesday’s debate between Democratic candidate Kamala Harris and Republican contender Donald Trump. Following the debate, pop star Taylor Swift publicly announced her support for Harris. U.S. Treasury yields have declined, and the dollar, along with bitcoin and U.S. stock futures, are broadly softer, suggesting that the debate has given Harris a competitive edge ahead of the November 5 election.

Betting platform predictions reflected this sentiment, showing Harris’ likelihood of winning rising by 3 cents to 56 cents for a $1 payout, while Trump’s chances fell by 5 cents to 47 cents. The yield on 10-year Treasuries reached 3.605%, its lowest since June 2023, while the dollar was trading at 141.68 yen.

Budget analysts indicate that Trump’s fiscal plans could lead to a significant increase in federal debt. Meanwhile, a 10-year Treasury auction later today will provide insights into investors’ appetite for U.S. government debt.

Bank stocks are also in focus following a sharp decline the previous day. The Fed’s regulatory chief recently unveiled a plan to increase major banks’ capital by 9%, significantly softening an earlier proposal that faced heavy opposition from Wall Street. This announcement, however, disappointed bank investors and some critics.

Additionally, JPMorgan Chase has tempered its income expectations from interest payments, and Goldman Sachs CEO David Solomon warned of a potential 10% decline in trading revenue for the quarter.

In Europe, Italy’s UniCredit announced it has acquired a 9% stake in Commerzbank and is seeking approval to purchase more, raising speculation about CEO Andrea Orcel’s intentions regarding the German lender.

Key developments that may influence U.S. markets later today include:
– U.S. August CPI release
– U.S. 10-year Treasury auction