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U.S. equity futures nudged higher in early Thursday trading, white the dollar accelerated to the highest levels in nearly two years, as investors continue to worry over the inflationary impact of new Trump administration policies while taking a cautious approach on stock market risk following last week’s run of record highs.
Stocks ended modestly higher Thursday, but gave back gains late in the session as Treasury bond yields moved higher following the Commerce Department’s October inflation report.
Headline CPI ticked higher last month, to 2.6%, but readings fore core and monthly pressures were largely in-line with forecasts, keeping bets alive for an end-of-year rate cut from the Federal Reserve.
The move higher in yields, however, suggests that investors see inflation remaining firmly above the Fed’s 2% forecast next year as Trump’s trade, tariff, tax and immigration policies take hold, limiting the central bank’s ability to lower rates further in the world’s biggest economy.
“Investors are preoccupied — and rightfully so — with inflation risks from tariffs, ” said Jeffery Roach, chief economist at LPL Financial. “In general, a tax from tariffs, or any other policy, creates a deadweight loss to the economy. Businesses and consumers feel the impact; employment typically shrinks, and our foreign trading partners often retaliate.”
Federal Reserve Chairman Jerome Powell will speak as part of a panel on the domestic economy later today in Dallas.
Olivier Douliery/Bloomberg via Getty Images
Fed Chairman Jerome Powell, who speaks as part of a panel later this afternoon in Dallas, could address that concern as markets look for further guidance on the central bank’s policy path.
In the meantime, asset prices are leading the way, with the U.S. dollar index rising 0.5% overnight to trade north of the 107.00 mark against a basket of six global currencies for the first time last last October, and scaling the highest levels in nearly two years.
Benchmark 10-year Treasury note yields, meanwhile, jumped another 3 basis points to 4.469% heading into the start of the New York trading session, with rate-sensitive 2-year notes holding at around 4.299%.
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Stocks are set for another muted open on Wall Street, ahead of producer price inflation and weekly jobless claims data at 8:30 am Eastern time, thanks in part to the rise in Treasury yields and the broader political uncertainty tied to President-elect Donald Trump’s cabinet choices and their impact on foreign trade.
Futures contracts tied to the S&P 500 suggest a modest 8 point opening bell gain, while those linked to the Dow Jones Industrial Average are priced for a 44 point bump.
The tech-focused Nasdaq, meanwhile, is called 26 points higher, with Nvidia (NVDA) rising 0.76% in premarket trading following a bullish update from chip sector bellwether ASML.
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In overseas markets, the regional Stoxx 600 benchmark rose 0.54% in early Frankfurt trading, with Britain’s FTSE 100 rising 0.23% in muted London trading.
Overnight in Asia, China stocks extended heavy declines following Trump’s naming of Florida Senator Marco Rubio as his nominee for Secretary of % and the State, with the CSI 300 falling 1.7% and the tech-focused Shenzen index down 2.8%. Stocks in Hong Kong were down 2%.
In Japan, the Nikkei 225 fell 0.48% in Tokyo, extending its losses to a third consecutive session, with tech stocks leading the declines.
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