US Stock Market Hangs in Balance as Inflation Data Looms

The US stock market is bracing for a crucial test as investors await the latest inflation data. The Consumer Price Index (CPI) report, due on September 11, will play a pivotal role in determining whether the Federal Reserve raises interest rates at its September meeting.

The benchmark S&P 500 slipped on Friday but still ended the week with a modest gain, remaining about 1% below its record high reached in mid-August. The market has been buffeted by shifting expectations for monetary policy, while rising US Treasury yields have raised concerns about the sustainability of Wall Street's rally.

The prospect of a rate hike gained further momentum on Friday after stronger-than-expected labour market data, with economists expecting headline CPI to rise 0.4% in August from the previous month and core CPI to increase 0.2%. The inflation data will begin with the Producer Price Index on Thursday, providing an early indication of price pressures heading into the August consumer inflation reading.

A stronger-than-expected inflation reading could reinforce expectations for a September rate hike, while softer data could weaken the case for tighter monetary policy and provide some relief for equities. Rate-hike odds remain finely balanced, with Fed funds futures late on Friday implying a 57% probability of a rate hike at the Fed's next meeting.