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Editor’s note: This story has been updated to correct the headline and to reflect that odds of a larger Federal Reserve interest rate cut fell after Tuesday’s economic data. The story has been updated with additional information on Federal Reserve rate cut probabilities.
U.S. retail sales rose more than expected by 0.1% month-over-month in August, signaling a resilient consumer spending momentum in the middle of the third quarter.
Retail sales slowed significantly from July’s upwardly revised growth; however, as they increased more than anticipated, this could boost the chances of a smaller interest rate cut when the Federal Open Market Committee releases its interest rate decision Wednesday.
Before the retail sales data was released, market-implied probabilities pointed to a 67% chance of a 50-basis-point rate cut, compared to a 33% likelihood of a smaller 25-basis-point cut, according to CME’s FedWatch tool. As of midday Tuesday, FedWatch shows a 63% chance of a larger 50-basis-point cut and a 37% chance of a 25-basis-point cut.
The U.S. Dollar Index (DXY) – as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP) – strengthened following the retail sales report, driven by rising Treasury yields.
Yields on the policy-sensitive 2-year Treasury note surged by about 5 basis points to 3.59%, indicating falling odds for a larger Fed rate cut.
Stocks inched higher during Tuesday’s premarket trading, with futures on the S&P 500 up 0.4% at 08:50 a.m. in New York. Nasdaq 100 futures were 0.6% higher.
On Monday, tech stocks closed in the red, with the Invesco QQQ Trust, Series 1 (NASDAQ:QQQ) falling 0.4%, dragged down by chipmakers as the iShares Semiconductor ETF (NASDAQ:SOXX) tumbled 1.3%
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