U.S. stock futures edged higher as investors expected that a softer-than-expected inflation reading would slow the Federal Reserve’s pace of interest-rate increases.
Futures for the S&P 500 added 0.3% and futures for the Dow Jones Industrial Average rose 0.4%. Contracts for the tech-focused Nasdaq-100 gained 0.3%. A rally in technology shares Wednesday pushed the Nasdaq Composite back into a bull market.
Inflation has been a key focus for both investors and the Fed this year. Central-bank officials have increased interest rates in recent months, raising borrowing costs, to slow demand and stabilize prices. Fed Chairman Jerome Powell has repeatedly said he is more concerned about the risk of failing to stamp out high inflation than about the possibility of raising rates too high and pushing the economy into a recession.
Money managers are hoping that the easing inflation data for July will be the start of a trend, though the path of inflation will be affected by the Ukraine war and nations’ responses to Covid-19. Stocks have struggled for much of the year, as they are sensitive to both interest rates and the economic outlook. Treasury yields, which largely reflect the expected path of short-term rates, have risen this year as investors anticipated interest-rate rises.
“Inflation data is the really key determinant of market sentiment. Depending on how you cut the data, you can start to sell a more positive or negative story,” said Edward Park, chief investment officer at U.K. investment firm Brooks Macdonald. While inflation data showed energy prices dropped, other goods and services still showed signs of elevation, he said.
Still, some investors are hoping that the inflation figures reduce pressure on the Fed to raise rates aggressively in the months ahead. Economists expect that fresh data, due at 8:30 a.m. ET, will show that prices paid by U.S. suppliers rose at a slower pace in July from the prior month.
In bond markets, the yield on the benchmark 10-year Treasury note ticked down to 2.777% from 2.786% Wednesday. Yields and prices move inversely.
Overseas, the pan-continental Stoxx Europe 600 was muted. While investors may be optimistic that U.S. price pressures may be peaking, Europe’s sensitivity to changing energy supplies due to the Ukraine war has caused some investors to be more nervous about the continent’s prospects for inflation and economic growth, Mr. Park said. In Asia, major indexes closed with gains.
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