Wall Street lower ahead of inflation report, ASX eyes flat start

US stock indexes are slipping, as traders make their final moves before several potentially market-moving reports later in the week.

The S&P 500 was 0.3 per cent lower in afternoon trading after erasing an early, modest gain. The Dow Jones was down 0.4 per cent in mid-afternoon trade and the Nasdaq composite was 0.1 per cent lower. The Australian sharemarket is set to inch higher, with futures at 4.56am AEST pointing to a rise of 4 points, or 0.1 per cent, at the open. The ASX added 0.5 per cent on Tuesday.

Treasury yields were easing in the bond market ahead of Wednesday’s highly anticipated update on inflation at the US consumer level. This week will also bring other reports on inflation, while big US companies will begin delivering their reports for how much profit they made during the first three months of the year.

The question hanging over Wall Street is whether inflation will cool enough to convince the Federal Reserve to deliver the cuts to interest rates that traders are craving and have been betting on. Some doubts have crept in following a series of hotter -than- expected reports on the economy, and traders are now expecting just two or three cuts to rates this year. Some are even talking about the possibility of zero cuts. That’s down from expectations for six or seven cuts at the start of the year, according to data from CME Group.

The Fed’s main interest rate has been sitting at its highest level in more than two decades, and the fear is that rates left too high for too long can cause a recession.

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If fewer cuts arrive this year, the onus will be on companies to deliver strong growth in profits to justify the big moves stock prices have made since autumn. The S&P 500 soared more than 20 per cent from November through March and set multiple records along the way. Critics say stock prices look expensive on several measures, and either profits need to rise or interest rates need to fall to make them look more reasonable.

Strategists at Bank of America are looking for Wednesday’s inflation update to show a cooldown after ignoring food and energy prices, which can zigzag sharply. Such a result would likely increase traders’ expectations for a cut to rates in June, which the market currently sees as slightly better than a coin flip’s probability.

While a jump in oil prices this year has raised worries about a feed through into inflation, oil would likely need to rise “well above levels seen even in the peak Russia-Ukraine commodity price spike for a meaningful impact on core inflation,” the Bank of America strategist said in a BofA Global Research report.