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 slipped 0.9%, while Meta inched up 0.15% and Tesla rose 0.44% in premarket trading.
Intel Corp 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 down 2.2% and Riot Platforms slipping 1.5%, tracking a 2% fall in bitcoin prices.
Alcoa 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.
(Reporting by Johann M Cherian and Purvi Agarwal in Bengaluru; Editing by Pooja Desai)
