US stock futures jump after report shows inflation cooling

By MATT OTT
AP Business Writer

Wall Street looks set to jump Thursday after a government report showed inflation eased by even more than economists expected last month. Futures for U.S. stock indexes surged 2% or more, indicating a big increase once trading begins, while Treasury yields fell dramatically as bond markets relaxed. Even bitcoin rose, clawing back some of its steep plunge from prior days caused the crypto industry’s latest crisis of confidence. A slowdown in inflation could mean the Federal Reserve won’t have to be so aggressive about raising interest rates. Such hikes have been the main reason for Wall Street’s troubles this year and are threatening a recession.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.

U.S. futures are modestly higher Thursday ahead of a U.S. inflation update that will likely influence Federal Reserve plans for more interest rate hikes as it tries to squelch four-decade high inflation.

Futures for the benchmark S&P 500 rose 0.2% and futures for the Dow Jones industrials inched up 0.1%.

Forecasters expect U.S. government data Thursday to show inflation eased in September but stayed near a 40-year high. That might reinforce arguments that rates have to stay elevated for an extended period to slow economic activity and extinguish inflation.

“An upside surprise today would present a challenge for officials who expect to slow the pace of rate hikes,” Rubeela Farooqi of High-Frequency Economics said in a report.

Economists forecast Thursday’s data to show inflation decelerated to 7.9% in September from the previous month’s 8.3%. However, prices were expected to rise 0.6% compared with August, accelerating from July’s 0.1% increase.

Core inflation, which strips out volatile food and energy prices to show a clearer trend, is expected to accelerate to 6.5% from August’s 6.3%. That suggests costs of rent, medical services, autos and other goods and services still are rising in response to strong demand.

Traders expect the Fed to raise rates again next month but by a smaller margin of one-half percentage point after a series of 0.75 percentage-point increases. The Fed’s key lending rate is a range of 3.75% to 4%, up from close to zero in March. A growing number of investors expect it to exceed 5% next year.

Wall Street’s benchmark S&P 500 index tumbled 2.1% on Wednesday as votes were counted to decide whether Republicans take control of Congress, possibly leading to changes that can unsettle markets. Investors were rattled by the crypto industry’s latest crisis of confidence and weaker profit reports from The Walt Disney Co. and other companies.

In European trading at midday, the FTSE 100 in London was 0.1% lower, the DAX in Frankfurt was unchanged and the CAC 40 in Paris shed 0.5%.

In Asia, Hong Kong’s Hang Seng index fell 1.7% to 16,081.04 and the Nikkei 225 in Tokyo sank 1% to 27,446.10. The Shanghai Composite Index lost 0.4% to 3,036.13.

The Kospi in Seoul declined 0.9% to 2,407.70 and Sydney’s S&P-ASX 200 was off 0.5% at 6,964.00.

India’s Sensex shed 1% to 60,447.97. New Zealand, Bangkok and Jakarta declined while Singapore and Malaysia gained.

Investors worry rate hikes this year by the Fed and central banks in Europe and Asia to cool inflation might tip the global economy into recession. Traders hope indicators that show U.S. housing sales and other activity weakening might prompt the Fed to back off plans for more rate hikes.

In the United States, Republicans were within nine seats of the 218 needed to control the House of Representatives as votes still were being counted in some states. Control of the Senate depended on races in Nevada and Arizona that hadn’t been decided.

The outcome will determine how the next two years of President Joe Biden’s term play out. Republicans are likely to launch a spate of investigations into Biden, his family and his administration if they take power. A GOP takeover of the Senate would hobble the president’s ability to appoint judges.

Still, the election “impact on markets is pretty irrelevant beyond the very near term,” said David Chao of Invesco in a report. “Investors should be worried about inflation, since that will help to dictate the Fed’s future path.”

Cryptocurrencies inched back up Thursday following a major sell-off when the trading platform Binance backed away from buying troubled rival FTX citing reported investigations and other troubling details.

Bitcoin climbed to $16,334 after tumbling to $15,900 on Wednesday. The original cryptocurrency is down about 76% from last year’s high of $69,000.

The yield on the 10-year Treasury, which helps dictate rates for mortgages and other loans, fell to 4.09% from 4.13%. The two-year yield, which tends to more closely track expectations for Fed action, dropped to 4.60% from 4.66%.

In energy markets, benchmark U.S. crude shed 61 cents to $85.22 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the price basis for international oil trading, lost 53 cents to $92.12 per barrel in London.

The dollar retreated to 146.35 yen from Wednesday’s 146.65 yen. The euro declined to 99.47 cents from $1.0073.

The Dow fell 2% and the Nasdaq composite, dominated by tech companies, tumbled 2.5% on Wednesday.

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McDonald reported from Beijing; Ott reported from Washington.