Futures market sees an uptick due to increased betting on interest rate reductions by the Federal Reserve

Headline: Federal Reserve Likely to Begin Cutting Interest Rates Soon, Market Expects Mid-September Move

Japanese manufacturers have shown increased optimism following a trade deal between Tokyo and Washington, as investors gear up for a series of perspectives from key Federal Reserve officials today. The outlook indicates that the Federal Reserve is likely to begin cutting interest rates soon, possibly starting at the mid-September meeting.

The shift in the Federal Reserve's stance is primarily due to recent U.S. inflation data and labor market signals. In his August 2025 Jackson Hole speech, Chair Jerome Powell opened the door to easing policy, emphasizing that decisions will remain data-driven and noting downside risks to employment and accumulating tariff effects on consumer prices.

Fed officials remain attentive to risks on both sides of their dual mandate (inflation and employment). Inflation remains somewhat elevated but is closer to the Fed’s objective once temporary tariff effects are excluded, with economic growth moderating in the first half of the year. Some members already prefer a 25 basis point rate cut as a proactive measure to support the economy and labor market.

Market expectations align with this view, as futures indicate nearly a 75% chance of a quarter-point rate cut at the next meeting. Powell reaffirmed the Fed's independence and commitment to making decisions solely based on evolving data and economic outlook, rejecting political pressure to adjust rates for non-economic reasons.

Meanwhile, Asian stock markets closed higher today, with China's Shanghai Composite Index (SHCOMP) closing up +0.48% and Japan's Nikkei 225 Stock Index (NIK) closing up +1.30%. Global risk appetite was lifted due to expectations for a Fed interest rate cut next month, as reflected in U.S. September S&P 500 E-Mini futures (ESU25) trending up +0.24% this morning.

Elsewhere, Japanese manufacturers remained cautious about the outlook due to potential impacts from U.S. tariffs. On the economic data front, investors will focus on U.S. Crude Oil Inventories data, set to be released later in the day. Additionally, the core CPI, which excludes volatile food and fuel prices, rose +0.3% m/m and +3.1% y/y in July, while U.S. inflation data for July showed a modest increase in goods prices.

In other news, Chinese authorities announced plans to impose a steep tariff of around 76% on canola shipments, intensifying trade tensions between China and Canada. China also announced it will provide interest subsidies for businesses in eight consumer service sectors and for individual consumers to bolster services consumption.

On the earnings front, network infrastructure provider Cisco Systems (CSCO) is set to report its FQ4 earnings results today. Intapp soared over +29% in pre-market trading after posting upbeat FQ4 results and announcing a $150 million stock buyback. Palo Alto Networks rose over +1% after Deutsche Bank upgraded the stock to Buy. However, CAVA Group plunged over -24% in pre-market trading after reporting much weaker-than-expected Q2 same-restaurant sales growth. CoreWeave slumped more than -9% in pre-market trading after reporting a wider-than-expected Q2 loss.

In Japan, Yokohama Rubber, a tyre maker, climbed over +8% after posting strong first-half results and raising its full-year earnings guidance. WH Group, a pork processor, climbed over +6% in Hong Kong after posting a 10.4% increase in first-half operating profit.

[1] Powell, Jerome H. (2025, August). The Federal Reserve's Framework for Maximum Employment and Price Stability. Speech delivered at the Jackson Hole Economic Policy Symposium. [2] CNBC (2025, August). Fed rate cut odds jump as Powell signals possible move at September meeting. Retrieved from https://www.cnbc.com/2025/08/25/fed-rate-cut-odds-jump-as-powell-signals-possible-move-at-september-meeting.html [3] Reuters (2025, August). U.S. inflation data shows modest increase in goods prices. Retrieved from https://www.reuters.com/business/us-inflation-data-shows-modest-increase-goods-prices-2025-08-12/

Futures market sees an uptick due to increased betting on interest rate reductions by the Federal Reserve