U.S. markets were little moved overnight as investors digest earnings, await new inflation and housing data, and examine possible outcomes for Europe's debt crisis.
Treasuries weakened slightly: the benchmark 10-year and 30-year yields are one and two basis points higher at 2.19% and 3.19%, respectively, while the two-year yield is steady at 0.27%.
U.S. equity futures are modestly higher: S&P 500 futures are up 0.9 points at 1,224 and Dow futures are up 16 points at 11,542.
Global equities are mostly in the black, with China as a notable exception. Shares in Hong Kong and Japan finished 1.29% and 0.35% higher, but Chinese stocks dropped 0.23%.
In Europe, despite Moody's cutting Spain two notches to A1 with a negative outlook (the rating now one notch below that of S&P and Fitch), the FTSE 100 has climbed 0.92% and the CAC-40 is up 0.62%.
BMO Capital Markets attributes the upbeat tone in Europe to rumors that the European Financial Stability Fund could get upsized to as much as €2 trillion, according to the Guardian, or €1 trillion, according to the Financial Times.
"If either of those stories is true that would be a step in the right direction for Europe," BMO said.
The EFSF, which boasts triple-A ratings from all three agencies, is currently backed by guarantee commitments from eurozone states totaling €780 billion; it has a lending capacity of €440 billion.
Among commodities, light crude oil moved up 0.08% overnight to $88.41 per barrel, while gold prices fell 0.19% to $1,649.70 per ounce.
Also, in fresh data: with interest rates climbing, MBA mortgage applications fell 14.9% in the week ending Oct 14. Purchases fell 8.8% and refinancing activity plummeted almost 17%. The average rate for a fixed 30-year mortgage averaged 4.33% in the week, up from 4.25% a week before.
Key Events Today:
8:30 - The Consumer Price Index increased to a year-over-year rate of 2% in September. Monthly prices have recently inflated 0.4% and 0.5% on rising food, gas, and rent prices. This month CPI should grow 0.3%; core prices, which strip out food and gas prices, should expand by 0.2% for the third month. That would leave the year-over-year headline rate at 2.1%, enough to get hawks at the Fed concerned about quantitative easing.
"Firms have managed to hike prices in many cases despite anemic consumer demand," said Janney Capital Markets. "The story here is, in our view, one of tight capacity in many industries. As firms cut back on production ability when times were tight in 2008- 2009, they generated a greater ability to control pricing when conditions stabilized, as was the case post-2009. That pricing power has been partially responsible for deflation not taking hold in the US economy over the ensuing eighteen months; the Fed's quantitative easing programs deserve credit for the balance."
Citigroup said CPI should by led higher by another jump in energy costs, but core price should be tame.
"Apparel prices have soared in the four months to August at the fasted pace in the post-WWII era," they added. "The 5% cumulative rise (not annualized) followed nearly a decade of stagnant prices. Given the lack of demand and tremendous slack in the economy, we have a hard time trusting that this is a new trend. Seasonal factors look for more than a 4% rise in prices in September. We think the price increase will fall short of seasonals, especially starting from such elevated levels, yielding a decline in apparel prices this month."
8:30 - Recent permit figures and post-Hurricane Irene rebuilding needs should contribute to higher Housing Starts in September. The annualized pace of new construction should improve to 595k, up from 571k in August but still below the 601k level registered in July.
"Housing starts likely remained in the tight range in place since the end of the recession," said Citigroup. "Single-family housing construction has been especially weak during this period, while multifamily housing shows some signs of a rebound ... Multi-unit starts are probably being spurred by the falling rental vacancy rate and the corresponding rise in rent prices."
IHS Global Insight also anticipated improvement, but say that permits will probably slip because the economy is struggling.
"The key number to watch in this report will be single-family permits, which have gradually improved from a low point of 382,000 in February to 418,000 in August," they said. "A strong increase - which we are not expecting - would point to a long-awaited recovery in housing construction."
8:30 - Eric Rosengren, president of the Boston Fed, speaks at the Boston Fed's conference on the long term effects of the great recession.
2:00 - Hopes are modest for the Federal Reserve's Beige Book, an anecdotal summary of economic conditions compiled by the 12 regional Reserve banks. In the last report on September 7, seven banks described local conditions as "very subdued," "slow" or "sluggish," while just five reported "modest" or "slight" growth. Labor markets were stable, stock market volatility was blamed for causing uncertainty, and retail sales were mixed.
"The tone of the report," said Nomura Global Economics, "should be less pessimistic compared to the FOMC statement and minutes from the September meeting because it will reflect the more positive data on the economy that has come in since that time. Still, we expect anecdotes of firms exhibiting restraint - in both hiring and capital investment - to also crop up in a labor market whose outlook has dimmed."