S&P 500 futures and Nasdaq futures were both slightly lower following Friday's declines.
For now, markets are pricing the likelihood of a big rate cut at just 29%, thanks in part to comments Friday from Fed Governor Christopher Waller and New York Fed President John Williams, though Waller left the option of aggressive easing open.
“The data suggests the labour market remains weak, but there are no signs of a rapid deterioration that would warrant a 50 basis point rate cut,” Barclays economist Christian Keller said.
“Importantly, the Fed's communications show no appetite for this,” he added. “Our view remains that the Fed will start the cycle with a 25 basis point cut and then cut rates by another 25 basis points over the remaining two meetings this year, for a total of 75 basis points of cuts next year.”
Investors are more dovish, pricing in 115 basis points of easing by Christmas and a further 127 basis points by 2025.
U.S. Consumer Price Index data for August due on Wednesday will likely underscore the need for a rate cut, however large, as headline inflation is expected to slow to 2.6% from 2.9%.
ECB to ease
“Guidance beyond September will be crucial as pressure will be on both sides,” TD Securities analysts said in a note.
“Wage growth and services inflation remain strong, encouraging hawks, while growth data has weakened, encouraging doves,” they added. “A quarterly rate cut is likely more in line with the new forecast.”
Bond prices rose on the prospect of global monetary easing, with 10-year Treasury yields falling to their lowest level in 15 months and two-year Treasury yields falling to their lowest level since March 2023.
The 10-year note was last trading at 3.734% and the two-year note was trading at 3.661%, putting the yield curve near its steepest since mid-2022.
The decline in yields prompted further unwinding of yen carry trades, sending the dollar down to as low as 141.75 yen on Friday before settling at 142.41 yen early Monday.
The euro rose to as high as $1.1155 on Friday before trading at $1.1090.
China's consumer price index (CPI) data due later on Monday is expected to show the Asian giant remains a powerhouse of disinflation, with producer prices expected to fall 1.4% year-on-year in August.
The Consumer Price Index (CPI) is expected to rise to 0.7% from 0.5% this year, mainly due to higher food prices.
China's trade balance figures due on Tuesday are expected to show a slowdown in both export and import growth.
Also on Tuesday, Democrat Kamala Harris and Republican Donald Trump will debate for the first time ahead of the Nov. 5 presidential election.
In commodity markets, lower bond yields held gold prices to $2,496 an ounce, below its recent all-time high of $2.531.
Oil prices found some support after posting their biggest weekly drop in 11 months last week amid ongoing concerns about global demand.
Brent crude rose 57 cents to $71.63 a barrel, while U.S. crude rose 60 cents to $68.27 a barrel.
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Reporting by Wayne Cole; Editing by Himani Sarkar
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