Trade and geopolitics also loom large with a U.S. tariff deadline on China due to expire on Tuesday amid expectations it will get extended again, while President Donald Trump and Russian leader Vladimir Putin are due to meet in Alaska on Friday to discuss Ukraine.
The main economic release will be U.S. consumer prices on Tuesday, with analysts expecting the impact of tariffs to help nudge the core up 0.3% to an annual pace of 3.0% and away from the Federal Reserve target of 2%.
An upside surprise would challenge market wagers for a September rate cut, though analysts assume it would have to be a very high number given a downward turn in payrolls is now dominating the outlook.
“The tone from the Fed has shifted as a number of officials expressed concerns about growth following the July employment report,” said Bruce Kasman, chief economist at JPMorgan.
“We now expect the Fed to restart its easing cycle in September,” he added. “Recession risks are elevated at 40%, but we do not yet see a case for a larger than 25bp series of cuts.” Markets imply around a 90% probability of a September easing, and at least one more cut by year end. Trump’s pick for Fed governor, Stephen Miran, may or may not be in place in time to vote for a cut in September, while the choice of a new chair has broadened out to around 10 contenders.
The prospect of lower borrowing costs has supported equities, along with a run of strong earnings.
Analysts at BofA note 73% of companies had beaten on earnings, well above the 59% long run average, while 78% beat on revenue. “While mentions of ‘weak demand’ ticked up and tariff concerns remain, corporate sentiment and guidance are improving,” they said in a note.
S&P 500 futures and Nasdaq futures both edged up 0.1% to near record highs.
Analysts were unsure what to make of a report in the Financial Times that tech majors Nvidia and AMD have agreed to give the U.S. government 15% of their revenues from chip sales in China, under an arrangement to obtain export licenses for the semiconductors.
Japan’s stock market was closed for a holiday, but futures stood at 42,290 and well above the cash close of 41,820, suggesting the index could test its all-time high of 42,426 this week.
MSCI’s broadest index of Asia-Pacific shares outside Japan was a fraction firmer, while South Korea was flat having bounced 2.9% last week. EUROSTOXX 50 futures added 0.2%, while FTSE futures were flat and DAX futures firmed 0.3%.
Currencies were quiet with markets thinned by Japan’s absence, with the dollar index steady at 98.246 after slipping 0.4% last week.
The euro was flat at $1.1644 and comfortably above its recent trough of $1.1392, while the dollar held at 147.66 yen having met resistance around 147.90.
The Australian dollar eased to $0.6516 ahead of a meeting of the Reserve Bank of Australia which is widely expected to sanction a rate cut, having stunned markets in July by skipping an easing to await more inflation data.
The figures turned out benign, so investors have again fully priced a quarter-point cut to 3.60%.
In commodity markets, gold dipped 0.3% to $3,386 an ounce after wild swings last week on reports the U.S. would slap 39% tariffs on some gold bars, which are major exports of Switzerland. Gold futures pared gains on Friday when the White House said it planned plans to issue an executive order clarifying the country’s stance on gold bar tariffs.
Oil prices slipped amid risks the talks between Trump and Putin could make progress to a ceasefire in Ukraine and possibly an eventual easing of sanctions on Russian oil exports.
Brent dropped 0.6% to $66.22 a barrel, while U.S. crude eased 0.7% to $63.44 per barrel.
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