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Futures Extend Record Highs As Inflation Fears Fade

S&P futures – which overnight rolled from the ESM (June) to the ESU (Sept) contract – extended gains on Friday further into record territory as inflation fears receded into the background calming concerns over a possible long-term spike in rising prices, with investors now turning focus to next week’s Federal Reserve meeting for more cues on monetary policy. Treasuries were steady, trading at 1.44% – just above the lowest level since March – amid growing (if wrong, according to BofA and DB) confidence inflation will prove transitory, leaving scope for continued central-bank support. S&P 500 E-minis were up 7.25 points, or 0.17 at 06:36 a.m. ET. Dow E-minis were up 77 points, or 0.22%, while Nasdaq 100 E-minis were up 30.25 points, or 0.22%.

After seeing fresh all-time highs on Thursday, US equity futures have largely been traversing sideways, in wake of Thursday’s dovish ECB confab, and surging US inflation, which has not given too much concern to equity or bond investors ahead of next week’s FOMC, since the Fed is likely to look through what it sees as ‘transitory’ price pressures; some analysts disagree, arguing that there is building evidence of more sticky prices, but whether or not this inflation proves to be transitory will only really be resolved in Q3/Q4, so for now, markets are taking the Fed at its word. BofA reported that US equities have seen the first weekly outflows since March, with more outflows out of growth styles than value styles; by sector, inflows were seen in financials, materials, real estate, energy and health care, while outflows were seen in utilities, communications, consumer sectors, and tech.

“It takes a brave investor to fight the Fed but it is becoming increasingly difficult to hold firm as inflation reaches 5% year-on-year,” Lewis Grant, senior global equities manager at Federated Hermes, wrote in a note. A “combination of attractive valuation and price momentum is likely to lead quantitative investors and systematic strategies to increase their allocation” to cheaper parts of the market, he said.

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