Everything hinged on whether inflation was truly retreating fast enough
US futures declined with Dow -0.31%, S&P 500 -0.30%, Nasdaq -0.46% as markets await PCE inflation data expected to show 0.2% monthly and 2.6% annual growth. Fed rate-cut probability for September 17 meeting reached 85% following Powell's signals, making inflation data crucial for monetary policy direction.
- US futures fell Friday: Dow -0.31%, S&P 500 -0.30%, Nasdaq -0.46%
- PCE inflation expected at 0.2% monthly, 2.6% annually for July
- Fed rate-cut probability for September 17 meeting reached 85%
- Dow Jones accumulated 3.4% gain in August; S&P 500 up 2.6%; Nasdaq up 2.8%
- Japan's core CPI at 2.5% year-over-year, above Bank of Japan's 2% target
US stock futures fell Friday as investors awaited July PCE inflation data, which could influence Fed rate-cut decisions. Powell's recent signals about imminent rate cuts heightened the report's significance.
The markets were holding their breath on Friday morning, waiting for a single number that could reshape the Federal Reserve's next move. US stock futures had turned lower across the board—the Dow Jones down 0.31%, the S&P 500 down 0.30%, the Nasdaq down 0.46%—all of them treading water until the July PCE inflation report arrived. This wasn't ordinary economic data. Jerome Powell, the Fed chair, had signaled just days earlier that interest rate cuts were coming soon, and now every trader in the world was trying to read the tea leaves of consumer spending patterns from a month ago.
Economists surveyed by Reuters expected the PCE index to show a monthly increase of 0.2% from June to July, with annual growth holding at 2.6%. Those numbers matter because the Fed watches PCE more closely than any other inflation gauge—it's their preferred lens for understanding whether prices are truly cooling or just pausing. The betting markets had already moved sharply. According to CME's FedWatch tool, traders were pricing in an 85% probability that the Fed would cut rates at its September 17 meeting. Powell's recent comments had essentially opened that door, and now the market was waiting to see how wide it would swing.
Across the Atlantic, European exchanges were also in the red, down 0.46% on the STOXX 600 index. But Europe's weakness had its own texture. Executives at major British banks were reportedly nervous about Finance Minister Rachel Reeves potentially tightening regulations on the sector as she worked to shore up the government's finances. Meanwhile, inflation readings were coming in from France, Spain, Italy, and Germany—all of them leading up to the eurozone's preliminary August inflation figure due the following Tuesday. The continent was in its own waiting game, watching its own price pressures.
Asia-Pacific had closed with mixed signals. Tokyo's core consumer price index rose 2.5% year-over-year in August, exactly in line with what Reuters had forecast but down from July's 2.9%. The deceleration was real, yet the number still sat stubbornly above the Bank of Japan's 2% target. Japan's unemployment rate had tightened to 2.3% in July from 2.5% the month before—a sign of labor market strength even as inflation remained sticky. Elsewhere in the region, Shanghai's index gained 0.37%, Hong Kong's Hang Seng rose 0.32%, while Tokyo's Nikkei fell 0.26%.
Commodity markets were their own story. Oil prices had retreated, with West Texas Intermediate down 0.46% to $64.30 a barrel and Brent crude down 0.52% to $68.26. The pullback came as expectations for a breakthrough in Ukraine peace negotiations had cooled, which meant less near-term prospect of Russian oil flooding back onto global markets. Iron ore, by contrast, was climbing—up 0.77% on the Dalian exchange to 787.50 yuan—buoyed by steady Chinese demand and shrinking inventories. Bitcoin had slipped 1.88% to $110,035, a modest retreat in the cryptocurrency's ongoing volatility.
Back in the US, the three major indices were on track to finish August with solid gains despite Friday's caution. The Dow had accumulated a 3.4% monthly advance, even though the week itself had been essentially flat. The S&P 500 was up 2.6% for the month and 0.5% for the week. The Nasdaq, heavy with technology stocks, had climbed 2.8% in August and about 1% in the past five days. The question now was whether the PCE number would sustain that momentum or force a recalibration. Everything hinged on whether inflation was truly retreating fast enough to justify the rate cuts Powell had hinted were near.
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Why does a single inflation report move entire markets like this? Isn't the Fed supposed to look at the bigger picture?
They do, but Powell just signaled cuts are coming. Now every trader is trying to figure out if the data will confirm that signal or contradict it. If PCE comes in hotter than expected, it complicates the case for cutting. If it's cooler, it validates Powell's stance. The market is pricing in 85% odds of a cut in September—that's a very specific bet.
So the market is ahead of the Fed?
Not exactly ahead. More like it's testing whether Powell meant what he said. The Fed chair doesn't usually signal cuts unless he's fairly confident, but markets have been burned before by premature optimism. They want to see the data confirm the narrative.
What about the rest of the world? Europe and Asia seemed to be moving independently.
They are, but they're all watching the same thing. If the US cuts rates, that affects capital flows globally. Europe has its own inflation story—still above target in Japan, mixed signals elsewhere. But a US rate cut could shift where money goes next.
And the oil and iron ore moves—what's driving those?
Oil is sensitive to geopolitical risk. Ukraine peace talks cooling means less Russian supply coming back online soon, so prices fell. Iron ore is the opposite—China's demand is steady and inventories are tight, so it's rising. Commodities are always reading different stories.
So Friday was really just a pause before the real news?
Exactly. The market was holding position, waiting. August had been a good month for stocks. Now everyone's asking whether that momentum survives what comes next.