US stock futures edge up on Fed pivot optimism

Futures tracking US stock indexes inched higher on Wednesday as investors were cautiously optimistic about rate cuts from the Federal Reserve early next year and waited for more labour market data.

The S&P 500 and the Dow closed lower in the previous session, but the tech-heavy Nasdaq was propped up by a fall in Treasury yields after data showing softening labour demand bolstered bets that the Fed was done raising rates.

Traders have nearly fully priced in the probability that the central bank will hold rates steady next week and expect to see rate cuts being delivered as soon as the first quarter of next year.

Bets of a cut of at least 25 basis points in March currently stand at 59 per cent, according to the CME Group's FedWatch tool.

At 6:58 am ET, Dow e-minis were up 34 points, or 0.09 per cent, S&P 500 e-minis were up 8.25 points, or 0.18 per cent, and Nasdaq 100 e-minis were up 36.25 points, or 0.23 per cent.

"With the Fed wanting to be sure that inflation is truly tied down before it loosens policy, we’re going to see this guessing game, where the market tries to position itself ahead of the Fed’s next move," Steve Clayton, head of equity funds at Hargreaves Lansdown said in a note.

Most megacap stocks edged higher in premarket trading. Nvidia rose 1.1 per cent after the chip designer said it was working with the US government to ensure new chips for the Chinese market are compliant with export curbs.

Optimism about peaking interest rates has led to a rebound in equities from their October lows, with the benchmark S&P 500 gaining nearly 9 per cent in November, hitting its highest close of the year last week.

Employment data is in focus this week, with November's non-farm payrolls report, due on Friday, likely to shape expectations for the interest rate path ahead.

Before that, investors will get another glimpse into the state of the labour market with the ADP National Employment report due at 8:15 a.m. ET on Wednesday.

Among other stocks, Plug Power fell 5.8 per cent before the bell, as Morgan Stanley downgraded the hydrogen fuel cell firm to "underweight" from "equal weight" on liquidity concerns.

Tobacco giants

Altria Group and Philip Morris International slipped 1.6 per cent and 1.0 per cent, respectively, after UK peer British American Tobacco said it will take a $31.5 billion hit from writing down the value of some US cigarette brands.