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U.S. equity futures bounced higher Wednesday, following on from the worst day on Wall Street in nearly a year, as investors look to recalibrate Federal Reserve rate forecasts following a surprise pickup in core inflation pressures.
Stocks were hammered yesterday when the Labor Department’s January inflation report showed both an acceleration in monthly core prices as well as a smaller-than-expected slowing of the headline CPI reading. The reports suggest the Fed will struggle over the “last mile” of its effort to bring inflation back toward its preferred 2% target.
The report triggered a massive selloff in Treasury bond yields, which are the most-sensitive to inflation pressures, and pushed the U.S. dollar index to the highest levels in more than three months. Traders revived concerns that the Fed may have to raise rates again should price pressures accelerate into the coming months.
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“A market that forcefully expected earlier easing — fortified by a series of rate cuts throughout the year — has had to digest not just a barrage of consistent Fedspeak but the stark reality that the Fed can still not declare victory on its long campaign to quell inflation,” said LPL Financial’s chief global strategist, Quincy Krosby.
“Even though rate cuts will probably begin in 2024 — it’s not if but when — the last mile is getting longer,” she added.
Benchmark 10-year-note yields, which surged more than 20 basis points (0.2 percentage point) during yesterday’s selloff to a session high of 4.345%, were last marked at 4.301%. Two-year-note yields steadied at 4.616%.
The U.S. dollar index, which tracks the greenback against a basket of six global currency peers, was marked 0.05% lower, trading just under the 105 mark at 104.908 in overnight dealing.
On Wall Street, the S&P 500 gave back 68 points, or 1.37%, into the close of trading, the worst inflation-triggered slump since September 2022. The small-cap Russell 2000 index, which consists of companies that rely heavily on bank funding, tumbled 4.3% for its biggest single-day decline since June 2022.
Market volatility gauges are back on the rise, as well, with CBOE Group’s VIX index jumping to an early November high of $15.15 in overnight dealings. At that level traders are expecting daily price swings for the S&P 500 of around 0.95%, or 47 points, each day over the next month.
Stocks are looking to claw back some of last night’s losses in the early trading hours, however, with futures tied to the S&P 500 suggesting an opening-bell gain of around 19 points, with the Dow called 77 points higher.
The tech-focused Nasdaq is called 106 points higher, helped by premarket gains for Nvidia (NVDA) , Advanced Micro Devices (AMD) and Tesla (TSLA) .
In overseas markets, last night’s selloff on Wall Street pulled the Nikkei 225 from its recent 1990 highs, although a weaker yen continues to support export stocks and the benchmark’s losses were limited to a 0.69% session decline.
In Europe, a flat inflation reading in Britain, where consumer prices rose 4% in January, triggered bets of a spring rate cut from the Bank of England, helping the FTSE 100 rise 0.78% in early London dealing.
The regionwide Stoxx 600, meanwhile, was marked 0.41% higher in early Frankfurt trading.
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