LIVE MARKETS-Cooler than expected PCE adds some steam to US stock futures
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COOLER THAN EXPECTED PCE ADDS SOME STEAM TO US STOCK FUTURES
US stock futures moved higher after a fresh batch of economic data, led by a softer-than-expected reading on the Fed's preferred inflation gauge.
S&P 500 E-mini futures are now up about 0.4%, accelerating from gains of roughly 0.1% before the data hit.
The latest PCE report gave investors some encouraging news on the inflation front. Headline PCE rose 0.3% in August, below the 0.4% estimate, while the annual rate came in at 2.6%, well under the 3.7% Reuters poll forecast.
Core PCE, which excludes food and energy, also came in softer than expected. It rose 0.2% on the month versus expectations for 0.3%, while the year-over-year reading was 3.0%, below the 3.3% consensus estimate.
The inflation data was accompanied by signs the economy remains on reasonably firm footing. Final second-quarter GDP growth was revised to 2.2%, ahead of the 1.5% Reuters poll estimate, while September ADP private payrolls rose 90,000, topping forecasts for 70,000.
Fed rate expectations have changed somewhat after the reports. According to CME's FedWatch tool, traders now see a 63% chance the Fed leaves rates unchanged at its October 27-28 meeting, up from 55% before the release. The odds of a quarter-point hike eased to 37% from 45%.
Looking further ahead, markets are pricing in about 29 basis points of additional tightening through the end of 2026, down from roughly 32 basis points before the data.
Treasury yields are lower, with the 10-year yield dipping to around 5.22% from about 5.24% immediately before the release. The benchmark yield finished Tuesday at 5.255%.
Most major S&P sector ETFs are trading higher in premarket action. Materials XLB.P is leading the way, up about 0.6%, while healthcare XLV.P and consumer discretionary XLY.P are the only sectors modestly in the red. Regional banks KRE.P are also firmer, with KRE gaining roughly 0.3%, and semiconductor shares SOXQ.O are also participating in the rally, with SOXQ up 0.5%.
Still ahead, traders will get the September Chicago PMI at 9:45 a.m. EDT. Economists expect a rebound to 51.2 from 47.1 previously.
Here is a premarket snapshot from shortly before 9 a.m. EDT:
(Terence Gabriel)
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