US futures gain steam after Wall Street's slide; rate-cut jitters loom

U.S. stock index futures recovered some lost ground on Wednesday after a sharp Wall Street sell-off in the previous session as a hot inflation report further clouded the timing for the Federal Reserve's first interest rate cut this year.

Rate-sensitive megacaps like Alphabet, Microsoft , Meta Platforms and chip stocks like Nvidia and Advanced Micro Devices rebounded, up around 1% each in premarket trading, as yields on U.S. Treasury notes - an indicator for rate expectations - eased slightly from over two-month highs.

Wall Street's main indexes slumped to over one-week lows on Tuesday, with the blue-chip Dow marking its worst day in 11 months, as data showed core consumer prices in January stayed at nearly double the Fed's 2% target, forcing investors to reassess expectations for a rate cut in the first half of 2024.

"The data goes against the current market base case of a Goldilocks scenario where growth remains robust, but inflation keep trending lower ... the rise in super core would support the recent central bank narrative of a pushback against early rate cuts," said Mohit Kumar, Jefferies' chief economist, Europe.

"We have been in the camp of later and lesser from central banks."

Euphoria around an early start to monetary policy easing had fueled a Wall Street rally since November, paving the way for a bull market for the S&P 500 this year. However, policymakers might have to wait a bit longer for more evidence of easing price pressures in the face of a resilient U.S. economy.

Still, Treasury Secretary Janet Yellen acknowledged that Tuesday's data showed progress in the fight against inflation.

Bets for an at least 25-basis-point rate reduction in May stand at 37%, down from 63% earlier in the week, while expectations for June stand at 76%, the CME FedWatch tool showed.

Markets will be keen on what the first batch of central bankers have to say on the monetary policy outlook after Tuesday's data. Remarks from Chicago Fed President Austan Goolsbee and Vice Chair for Supervision Michael Barr are expected through the day. (Reuters)