US EARLY MORNING: Equity index futures are trading flat ahead of US CPI data due today

US PRE-MARKETS: US equity futures are trading around unchanged levels, while Treasury yields are higher by 2-3bps across the curve; the Dollar Index is flat. Markets are trading in a tentative fashion ahead of the US CPI data for August, where the headline rate of annual inflation is likely to tick up on energy effects, while the core rate of inflation is seen easing on an annual basis (see below for our primer). Markets currently expect the FOMC will hold rates at 5.25-5.50% next week, but there are some scenarios where pricing for a hike might increase, analysts say. This could also manifest itself in November pricing, where the probability for a hike is currently priced at around 50/50. Further out, markets are fully discounting the first Fed rate cut by July 2024.

PREVIEW - US CPI (13:30BST/08:30EDT): Headline inflation is expected to rise 0.6% M/M in August, picking up in pace versus the 0.2% M/M printed in July; the annual headline is expected to rise to 3.6% Y/Y from 3.2%. The core rate is seen up 0.2% M/M, matching the prior month; the annual core rate is seen easing to 4.3% Y/Y from 4.7%. Higher energy prices are likely to drive the headline up, but the core rate is seen steady. "While inflation will continue to moderate, the path to 2% price growth will be slow and rocky," Moody's writes, "the ongoing decline in used-vehicle prices will provide some downward pressure, but the biggest shoe yet to drop is related to housing and rent prices, where weakness from late 2022 has yet to show up in the CPI." Fed officials have recently been striking a balanced approach to guiding policy, welcoming the progress already made in bringing price pressures down, but noting that there is still further to go, while generally caveating their policy views around incoming data. From the market's perspective, the FOMC has already reached its terminal rate, and instead, the focus appears to be on when the central bank will begin to cut rates. Recent data releases have seen the timing swing towards May when the data has been weak, and out to July when data has been strong; the CPI data is likely to continue this pattern. (Full Newsquawk primer here)

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13 Sep 2023 - 09:30- Fixed IncomeData- Source: Newsquawk

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