A look at the day ahead in U.S. and global markets from Mike

Dolan

Wall Street futures have found their feet after Friday's

exaggerated market reaction to an otherwise middling employment

report - with Apple's ( AAPL ) new iPhone and Tuesday's presidential

candidates' debate next up on the radar.

The August payrolls report was modestly weaker than

forecast, even if a significant improvement on July. Downward

revisions to prior months softened the picture a bit more.

But the report was neither strong enough to completely

dispel slowdown and recession fears for next year nor was it

seen to be weak enough to nudge the Federal Reserve into a jumbo

50-basis-point interest rate cut this month.

Top Fed policymakers Christopher Waller and John Williams

underscored expectations that a Sept. 18 cut is coming - the

former even said the easing cycle should be 'frontloaded'. But

neither seemed panicked enough to suggest 50 bps was needed yet.

By the close, the S&P500 was down 1.7% - clocking a

4.5% loss for the week that now stands as its worst since March

2023 and underlines yet again the seasonal downdraft that

typically comes with September.

Following suit in a more measured fashion, Asian markets

slipped early on Monday too.

And yet despite markets scaling back the expected size of

this month's Fed rate cut, there's been no change to 112 bps of

Fed rate cuts priced in by year-end, nor the 235bps seen over

the next 12 months.

Ten-year Treasury yields hit on Friday their

lowest since June last year and two-year yields their lowest

since March 2023. Both firmed up a tad on Monday ahead of the

week's auctions of $119 billion of 3-, 10- and 30-year Treasury

coupons.

U.S. stock futures and European bourses bounced back

smartly today ahead of another crammed week - a likely second

European Central Bank rate cut of the year on Thursday, Apple's ( AAPL )

release of its new AI-infused iPhone on Monday and Tuesday's

televised face-off in the White House race.

The euro was on the backfoot ahead of the ECB

decision, with likely cuts to the central bank's GDP and

inflation forecasts on Thursday keeping some hopes alive of a

third rate reduction as soon as next month.

Even though the Fed seems to have pivoted clearly toward the

employment side of its dual mandate rather than the inflation

one, the August CPI inflation report on Wednesday will be

important to assess the degree of ongoing disinflation.

On that score the deflationary pressures from overseas

remain powerful, with China recording deep annual producer price

deflation of 1.8% once again last month and a meagre consumer

price inflation rate of just 0.6% that also missed forecasts.

Commodity markets are doubling down on that disinflation.

Even though oil prices had a toehold on Monday, U.S. crude

remains below $70 per barrel after hitting a 15-month low

on Friday and is still recording year-on-year declines of more

than 20%.

U.S. market inflation expectations are evaporating fast.

The 10-year 'breakeven' inflation view embedded in

inflation-protected Treasuries is now at just 2.04%

- its lowest since January 2021. The two-year equivalent

is just 1.87% - well below the Fed's 2% target and

raising the risk that significant undershoot of that goal may be

in store.

The New York Fed publishes its August survey of household

inflation expectations later on Monday.

Back in politics, the U.S. election race heats up again this

week with Tuesday's first televised debate between U.S.

Democratic presidential candidate Kamala Harris and Republican

challenger Donald Trump.

The stakes remain high as national opinion polls show the

two neck and neck again after a brief period in which Harris

gained the ascendancy following her nomination.

A poll conducted by The New York Times and Siena College

released on Sunday showed the two effectively tied, with Trump

up one percentage point - 48%-47% - over Harris.

The PredictIt betting site has them in a dead heat again

too.

In Europe, former ECB chief and Italian Prime Minister Mario

Draghi delivered his long-awaited report into reforming Europe's

economy, urging the European Union to adopt a more coordinated

industrial policy, more rapid decisions and massive investment

if it's to keep pace with the United States and China.

In company news, all eyes will be on Apple's ( AAPL ) new iPhone

series later on Monday. Its stock was indicated up 1.6%

ahead of the bell, alongside most of the other Big Tech

megacaps.

The Financial Times newspaper reported on Saturday that the

latest iPhone's A18 chip, which is set to be unveiled at

Monday's event, has been developed using Arm's newest V9

chip design.

And Boeing ( BA ) shares rose 3% in U.S. premarket trading

after the planemaker reached a tentative deal with a union in

the U.S. Pacific Northwest that could avoid a possible crippling

strike later this week.

Key developments that should provide more direction to U.S.

markets later on Friday:

* New York Fed's inflation expectations survey, US August

employment trends, July consumer credit; Mexico August inflation

* Apple ( AAPL ) unveils new iPhone series

* US corporate earnings: Oracle

* US Treasury sells 3-, 6-month bills

(By Mike Dolan, editing by Emelia Sithole-Matarise

[email protected])