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North American Morning Briefing: Stock Futures Tick Up Ahead of Inflation Data

MARKET WRAPS

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U.S. CPI for August.

Opening Call:

Stock futures edged higher ahead of fresh data that is likely to show that inflation remained elevated in August.

Investors are showing signs of cautious optimism this week as they bet that the economy will continue to recover, bolstering corporate earnings. That marks a shift from last week, when a rise in Delta variant cases of Covid-19 had stoked concerns that measures to contain the virus could weigh further on economic activity or slow the shipping of goods and materials, adding to inflationary pressures.

"The skittishness in markets is down to the Delta variant and the effect on growth expectations," said Edward Park, chief investment officer at U.K. investment firm Brooks Macdonald.

Investors are also focused on whether the Federal Reserve will begin scaling back its easy-money policies in coming months, he added. "There is this interesting moment we've got in markets where Delta is still a concern, but at the same time you've got central banks tapering or about to taper," Mr. Park said.

Many Fed officials have said in recent interviews and public statements that they could begin reducing, or tapering, their monthly purchases of bonds by the end of this year if the economy performs as they anticipate. Both inflationary pressures and the recovery in the labor market are likely to be key gauges that could influence their timing.

The Fed has said it expects inflation to be temporary. But some investors expect that it could prove stickier than anticipated.

"It is hard for us to say, well folks, all these things are transitory and come January 2022, we expect everything to be back to normal," said Carsten Brzeski, ING Groep's global head of macro research. "Every data point that shows that inflation is more than only transitory, we get closer to tapering."

The inflation data for August are due to be released at 8:30 a.m. ET. Economists surveyed by The Wall Street Journal forecast that the consumer-price index gained last month.

Forex:

The dollar edged lower, allowing the euro to rise back above $1.18, suggesting that Monday's gains in the U.S. currency were "probably mostly driven by some position adjustments ahead of U.S. CPI data," said UniCredit.

It expects U.S. inflation figures, due at 1230 GMT, to show the annual rate of CPI inflation not accelerating any further, which it says will likely be neutral or negative for the dollar.

The figures won't alter the likelihood that the Federal Reserve will start tapering asset purchases this year, likely in December, UniCredit said.

Bonds:

The yield on the benchmark 10-year U.S. Treasury note ticked up to 1.343% from 1.323% Monday.

Pimco's base case is that many near-term inflation pressures will prove transitory. Nonetheless, the asset manager remains "humble" in its forecasts and believes the upside risks to longer-term inflation are worth considering, Pimco's fixed-income strategists said.

Many investors remain vulnerable to higher inflation given they are "handcuffed" to high levels of duration and because rising inflation expectations put upward pressure on interest rates and, therefore, downward pressure on bond prices, Pimco said. Duration is a measure of sensitivity of bond prices to a change in interest rates.

Commodities:

Oil prices remained higher after the IEA released its monthly market report. The energy watchdog said that the impact of Hurricane Ida and other oil supply outages in Mexico, Russia, Nigeria and Libya will take a sizable chunk out of global oil production this year.

The agency also cut its supply rebound forecast for 2021 by 150,000 barrels a day and cut its demand forecast by 100,000 barrels a day, citing the impact of the coronavirus's Delta variant. "It is only by early 2022 that supply will be high enough to allow oil stocks to be replenished," the report said.

LME three-month copper futures were down 0.9% at $9,448 a metric ton, with the broader metals basket and equities indexes mostly drifting lower. Those losses come in the wake of heavier metals selling on Monday.

Marex Spectron's Anna Stablum cited profit-taking as being behind Monday's price losses. Open interest in Shanghai is down across most metals on the day, she added.

London gold prices were down in another lethargic session. Gold's "price action continues to be seriously underwhelming, unable to rally when the U.S. dollar falls and moving lower when it rises," OANDA's Jeffrey Halley said.

   
 
 

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September 14, 2021 06:00 ET (10:00 GMT)

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