Futures muted in cautious start to Fed meeting week

By Johann M Cherian and Purvi Agarwal

(Reuters) -U.S. stock index futures were subdued on Monday as caution prevailed ahead of the Federal Reserve's pivotal monetary policy decision later in the week, with investors pricing in a steep reduction in borrowing costs.

Ever since Fed Chair Jerome Powell hinted at an upcoming rate cut late last year, markets have witnessed a bull run, with the S&P 500 and the Dow now near record highs.

However, following a mixed batch of economic data and comments from a former policymaker in the last few weeks, traders swayed in their bets on what decision the central bank will arrive at during its Sept. 17 to 18 meeting.

Odds for a 50-basis-point cut are at 59% from 30% a week ago, according to the CME FedWatch Tool, which showed a 41% probability for a 25-basis-point reduction. There is concern an outsized move could mean the Fed sees the economy cooling at a faster pace.

"As important as the 25 vs 50 debate will be the communication from the Fed. Would a 50bps be the start of 50s or a one off larger move to start the cycle? Would a 25bps mean the bar for subsequent 50s is high? There will be lots to digest," a group of strategists at Deutsche Bank led by Jim Reid said in a note.

The benchmark index and the tech-heavy Nasdaq notched their biggest weekly jumps in about 11 months on Friday, although analysts attributed the optimism to signs of a robust economy rather than rate-cut expectations.

At 07:00 a.m. ET, Dow E-minis were up 85 points, or 0.21%, S&P 500 E-minis were up 2 points, or 0.03%, and Nasdaq 100 E-minis were down 38.5 points, or 0.20%.

Futures tracking small caps, which tend to do well with lower borrowing costs, outperformed with a 0.72% rise. The Russell 2000 index has gained over 7% so far this year and hit its highest level in over a week on Friday.

In economic data, retail sales, weekly jobless claims, housing starts and industrial production are due through the week.

Among rate-sensitive growth stocks, Nvidia (NASDAQ:NVDA ) slipped 0.9%, while Meta (NASDAQ:META ) inched up 0.15% and Tesla (NASDAQ:TSLA ) rose 0.44% in premarket trading.

Intel Corp (NASDAQ:INTC ) climbed 2% after a report showed the chipmaker has officially qualified for as much as $3.5 billion in federal grants to make semiconductors for the U.S. Department of Defense.

Trump Media & Technology added 3.7% after an apparent second assassination attempt on the Republican candidate and former president on Sunday, weeks before the closely watched U.S. presidential election.



Crypto stocks trended lower, with Microstrategy (NASDAQ:MSTR ) down 2.2% and Riot Platforms (NASDAQ:RIOT ) slipping 1.5%, tracking a 2% fall in bitcoin prices.

Alcoa (NYSE:AA ) gained 1.4% after the aluminum maker said on Sunday it would sell a 25.1% stake in its joint venture with Saudi Arabia's Ma'aden for $1.1 billion.

Source: Investing.com