James E. Thorne, Chief Market Strategist at Wellington-Altus, commented on the potential return of the yen carry trade, stating:
“With Prime Minister of Japan Shigeru Ishiba’s resignation, Sanae Takaichi is now the front-runner to lead Japan, signalling a major policy shift that will directly affect the Bank of Japan. Takaichi’s support for maintaining low interest rates is likely to keep the yen weak and incentivize global capital outflows through the yen carry trade.”
Fed rate cut bets lifted stock futures, but investors stayed cautious ahead of the CPI report, capping the morning gains.
Futures Edge Higher on Inflation Optimism
US stock futures advanced in early trading on Thursday, September 11, after the main indexes posted mixed performances overnight. The Nasdaq 100 E-mini gained 31 points, the S&P 500 E-mini rose 12 points, while the Dow Jones E-mini advanced 40 points.
Upbeat data from Japan and expectations of multiple Fed rate cuts through the remainder of 2025 boosted sentiment.
According to the CME FedWatch Tool, the chances of a September Fed rate cut remain at 100%. However, the probability of a 50-basis-point rate cut in September rose from 7% to 8%. A weaker-than-expected US Jobs Report, the downward revisions to 2024 nonfarm payrolls, and softer producer prices raised expectations of more aggressive Fed rate cuts.
Despite the market optimism, the US CPI Report will be the main event.
CPI Outlook: Make or Break for Risk Sentiment
Today’s US CPI Report will influence sentiment toward Fed monetary policy and risk appetite. Economists forecast the annual inflation rate to rise from 2.7% in July to 2.9% in August.
A hotter-than-expected inflation reading could dampen bets on aggressive Fed rate cuts, weighing on risk assets. Furthermore, an upswing in inflation may fuel concerns about stagflation, a headwind for US equities. Rising stagflation concerns could outweigh the supportive effect of Fed rate cuts on risk assets.
On the other hand, cooling inflation would ease stagflation risks and boost expectations of a 50-basis-point September rate cut, lifting sentiment.