Us stock index futures fell slightly before trading on Tuesday as investors waited for the US consumer price index (CPI) in August, a key indicator of inflation, that could affect expectations that the Fed would scale back its bond purchases.
As of press time, Dow futures are down 0.2%, the S & P 500 is down 0.1%, and Nasdaq futures are down 0.2%.
The FTSE 100th index in the UK fell 0.9 per cent, Germany's DAX index rose 0.5 per cent and France's CAC-40 index fell 0.9 per cent.
The dollar index hovered around 92.70 on Tuesday and climbed to a two-week high against a basket of currencies on Monday, buoyed by expectations that the Fed could scale back its asset purchases by the end of the year, although cases of COVID-19 are still surging.
Spot gold fell back to around 1785.
Traders are cautiously waiting for the latest US inflation data, which will show whether consumer prices are still rising at their fastest pace in 13 years. The overall CPI is expected to remain unchanged at 4.5%.
"the US consumer price index (CPI) held steady at 4.5 per cent in July, which makes people breathe a sigh of relief and increases the likelihood that inflation may have peaked," said CMC Markets's Michael Hewson.
"what is even more encouraging is that core CPI fell from 4.5 per cent in June to 4.3 per cent in July. However, even if the central bank is optimistic about rising prices, if the latest inflation expectations survey of the Federal Reserve Bank of New York is credible, US consumers will certainly not be optimistic."
"Consumer expectations for inflation over the next three years are as high as 4 per cent, compared with 5.2 per cent for one year."
Economists expect CPI to rise 0.4 per cent month-on-month and 5.4 per cent year-on-year in August. In august, PPI rose 8.3% from a year earlier, the biggest annual increase since records first began in November 2010.
Steven Bell, chief economist of the BMO GAM, said on Tuesday that he expected the Fed to confirm its plan to scale back its bond purchases by the end of the year.
He said the market had already digested this, so the focus was expected to shift to when the Fed would start raising interest rates, depending on inflation and employment data. "this week's data are likely to show that inflation has cooled month by month, but it is still well above the 2 per cent target, with employment problems preventing the Fed from raising interest rates," Bell said.
At present, the main indexes of US stocks fell at least 1% in September.The S & P 500 is not expected to rise significantly until the end of the year. On Monday, the company raised its year-end target for the benchmark index to 4500 from 4325. The new target is less than 1% higher than the index closed on Monday.
"We continue to believe that the S & P 500 will experience a volatility / sharp correction before the end of the year, as we have been thinking over the past few months because of rising stock market sentiment and positions."
"while we seriously consider the reasons for the pullback, we also believe that the risk of recession is low, reducing the likelihood of an across-the-board growth panic and intend to see it as a buying opportunity," RBC added.
"in the short term, we expect the stock market to become more volatile, but long-term investors should use the pullback to increase their exposure to stocks," said Richard Saperstein, chief investment officer of Treasury Partners.
"the stock market tends to be weak due to seasonal factors over the next six weeks, which is an additional concern for stocks that are already facing rising valuations and lack a short-term upward catalyst," he added. "
Philadelphia Federal Reserve Bank President Mike Huck became the latest policy maker to say he wants the Fed to start scaling back its bond purchases this year. He said he was keen to scale back his asset purchases.
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