U.S. futures mixed as more signs of inflation fuel rate fears

BEIJING –

U.S. futures are mixed Thursday after more signs of enduring upward pressure on U.S. and European prices raised expectations that central banks globally will maintain elevated interest rates for an extended period of time.

On Wall Street, futures for the benchmark S&P 500 index fell 0.4%, while the Dow Jones Industrial Average rose 0.2%.

New data out of Europe Thursday showed that inflation eased slightly in the 20 countries that use the euro currency. The consumer price index reached 8.5% in February compared with a year earlier, a drop from 8.6% in January, the European Union’s statistics agency Eurostat said.

The figure was higher than economist expectations of 8.3%. Inflation is down from its peak of 10.6% in October but its persistence has caught many off guard.

Data Wednesday from Germany, Europe’s biggest economy, showed inflation held steady in February after rate hikes by the European Central Bank.

There are “very few to no signs of any disinflationary process outside of energy and commodity prices,” Carsten Brzeski of ING said in a report.

A survey Wednesday from the Institute of Supply Management showed prices paid by U.S. manufacturers rose in February for the first time in five months despite rate increases to cool economic activity and surging inflation.

That immediately raised the bar on how high most expect the Federal Reserve to hike rates and extended the timeline on when it might cut them

“Inflation expectations are climbing again,” said Brian Levitt of Invesco in a report. “The Fed pause may not be coming now until the middle of the year, at the earliest.”

The Fed has raised its benchmark lending rate to 4.5% to 4.75% from close to zero at the start of 2022 in an effort to cool inflation to 2%.

After the latest inflation reading, traders expect the Fed to raise its key rate to at least 5.25% by June. Some expect it to go to 5.5%, which would be the highest level in 22 years.

In corporate news, storied retailer Macy’s reported that its profit and sales for the holiday quarter slid, with inflation leading some customers to pull back. But it beat Wall Street expectations and its outlook for 2023 didn’t disappoint given the uncertain economic environment. Shares rose 9% before the opening bell Thursday.

Retailers have been feeling the sting of a consumer spending slowdown in an economic environment that’s growing more unpredictable. A number of retailers including Kohl’s, Walmart and Target all in the past week have offered annual financial outlooks lower than what analysts expected.

Electronics retailer Best Buy told a similar story Thursday, beating last quarter’s targets, but issuing a tepid forecast for the full year. Its shares dipped 1.5% in premarket.

Costco and Kroger report quarterly results later Thursday.

At midday in Europe, the FTSE 100 in London inched back 0.1%, the DAX in Frankfurt declined 0.4% and the CAC 40 in Paris was unchanged.

In Asia, the Shanghai Composite Index lost less than 0.1% to 3,310.65 and the Nikkei 225 in Tokyo sank less than 0.1% to 27,498.87. The Hang Seng in Hong Kong gave up 0.9% to 20,429.46.

The Kospi in Seoul rose 0.6% to 2,427.85 and Sydney’s S&P-ASX 200 added less than 0.1% to 7,255.40.

India’s Sensex lost 0.8% to 58,908.28. New Zealand and Jakarta gained while Singapore and Bangkok retreated.

In the bond market, the yield on the 10-year U.S. Treasury, or the difference between the market price and the payout at maturity, widened to 4.03% from from 4% late Wednesday. It is at its highest level in almost four months.

The two-year yield, which moves more on expectations for the Fed, inched up to 4.9% from 4.88%.

In energy markets, benchmark U.S. crude declined 32 cents to US$78.01 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 64 cents on Wednesday to $77.69. Brent crude, the price basis for international oil trading, gained 34 cents to $84.65 per barrel in London. It gained 86 cents the previous session to $84.31 a barrel.

The dollar rose to 136.66 yen from Wednesday’s 136.17 yen. The euro declined to $1.0623 from $1.0658.

On Wednesday, the S&P 500 lost 0.5% while the Dow edged up less than 0.1%. The Nasdaq fell 0.7%.

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McDonald reported from Beijing; Ott reported from Silver Spring, Md.