U.S. stock futures steady as inflation fallout fears resurface

U.S. stock index futures pointed to a sluggish start on Thursday as investor concerns about central bank interest rate hikes resurfaced.

How are stock index futures trading
  • S&P 500 futures
    ES00,
    +0.15%

    dipped 5 points, or 0.1%, to 4271

  • Dow Jones Industrial Average futures
    YM00,
    +0.08%

    fell 13 points, or 0.1%, to 33950

  • Nasdaq 100 futures
    NQ00,
    +0.18%

    eased 8 points, or 0.1%, to 13486

On Wednesday, the Dow Jones Industrial Average
DJIA,
-0.50%

fell 172 points, or 0.5%, to 33980, the S&P 500
SPX,
-0.72%

declined 31 points, or 0.72%, to 4274, and the Nasdaq Composite
COMP,
-1.25%

dropped 164 points, or 1.25%, to 12938. The Nasdaq Composite is up 21.5% from its mid-June low but remains down 17.3% for the year to date.

What’s driving markets

The S&P 500, the Wall Street benchmark, by midweek had rallied more than 17% off its mid-June low as investors became more optimistic that a deceleration in consumer price rises could allow the Federal Reserve, and its peers worldwide, to be less aggressive in hiking interest rates.

However, the bounce saw stock indices looking overbought, according to momentum gauges like the S&P 500’s 14-day relative strength index, and that left them vulnerable to disappointment.

Sure enough, resurgent fretting over central bank monetary policy tightening is being used as an excuse for profit taking.

“After a very strong run for risk assets thanks to a narrative that we might have seen ‘peak inflation’, Wednesday put a stop to that as multiple headlines came through that poured cold water on the prospect that central banks were about to let up on hiking rates,” said Henry Allen, macro strategist at Deutsche Bank.

A hawkish interest rate decision on Wednesday by the New Zealand central bank was followed by U.K. inflation topping 10% for the first time in more than 40 years, the latter sparking a rout in policy-sensitive short-duration bonds as traders priced in more rate hikes by the Bank of England.

Then, later in the global trading session, traders strived to absorb the minutes of the July Federal Reserve policy meeting. Investors hoping for any indication that Chair Jay Powell and colleagues may be a touch more dovish were disappointed. The Fed will continue tightening its policy until it sees that inflation is “firmly on path back to 2%,” the minutes showed.

“The best approach is for the FOMC to remain on message with its forecast until that forecast changes. Failure to do so allows the market to run wild with its own imagination. The central bank has spent the past three weeks trying to reel the market back from the dovish pivot speculation,” said Mike O’Rourke, chief market strategist at Jones Trading, in a note to clients.

These factors continued to reverberate on Thursday, with Norway’s central bank giving the narrative an extra shove by raising rates by 50 basis points to 1.75%.

U.S. government bond yields, which jumped on Wednesday as inflation concerns built, were a touch softer early in the new session, the 10-year
TMUBMUSD10Y,
2.880%

easing 1 basis point to 2.89%.

U.S. data due for release on Thursday include the weekly initial unemployment claims at 8.30 a.m. Eastern and existing home sales at 10 a.m. Eastern.

Nathan Sheets, global chief economist at Citi, said that even though financial markets had become more positive of late, “we remain concerned about the underlying fundamentals of the global economy. Our sense is that economic performance is likely to be plagued by high inflation, slowing real GDP growth, and rapidly tightening monetary policy for some time to come.”

Related: Expect rolling recessions as Citi cuts economic forecasts

How are other assets faring
  • Oil futures were higher with U.S. crude
    CL.1,
    +1.88%

    up 1% to $88.98 a barrel.

  • The ICE Dollar index
    DXY,
    +0.06%

    rose 0.2% to 106.75, though gold
    GC00,
    +0.41%

    shrugged this off to add 0.2% to $1,779 an ounce.

  • Bitcoin
    BTCUSD,
    +0.47%

    advanced 0.2% to $23463.

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