(Bloomberg) — U.S. stock futures firmed after producer price inflation was in line with expectations as investors debated the possibility of a December interest rate cut.
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U.S. Treasury yields rose on the data, with S&P 500 and Nasdaq 100 contracts giving up modest gains, amid signs that post-election stock gains are starting to stall.
Investors are trying to balance a picture of easing inflation and lower interest rates with the possibility that President-elect Donald Trump will follow through on his tough tax and tariff promises, leading to a renewed rise in prices next year. The confirmation of the Republican Party's sweeping electoral victory suggests that President Trump will have even more policy space, limiting the possibility of reining in his power.
“President Trump's policies are market- and growth-friendly, and there is an expectation that they will have an impact on higher inflation, but not on a large scale. Deregulation. will have a positive impact on some sectors.” “The assumption is that there will be no major negative impact that the market is pricing in and that we have a good, soft-spoken Trump.”
The dollar index expanded its rise in response to the data and remained near its highest level in two years. Bitcoin traded around $91,000, close to Wednesday's all-time high.
The producer price index for final demand rose 0.2% month over month, after rising a revised 0.1% in September, Bureau of Labor Statistics data showed on Thursday. Separately, U.S. claims for unemployment benefits fell last week to the lowest level since May, showing a strong labor market.
Several Federal Reserve officials on Wednesday reiterated deep uncertainty about how far the central bank will need to cut interest rates, even as the central bank's 2% inflation target is still out of reach. Federal Reserve Chairman Jerome Powell is also scheduled to speak later in the day.
Money markets are currently pricing in a rate cut of about 19 basis points in December, with several policymakers urging a cautious approach. For example, Federal Reserve President Adriana Kugler said Thursday that interest rate cuts should be paused if inflation progress stalls.
Analysts at Brown Brothers Harriman said Mr. Trump appears to have the wherewithal to implement policy, which could limit his room for further rate cuts. The dollar has risen more than 2% so far this month on pro-growth policies and the prospect of fewer interest rate cuts.
