NEW YORK (AP): U.S. futures rebounded slightly Wednesday after ominous inflation data led to the biggest single-day market rout in more than two years.
Futures for the Dow Jones industrials inched up 0.1% while futures for the S&P rose 0.2%. Asian markets finished lower and European markets are in decline at midday.
Tuesday’s report on U.S. consumer prices came in at a hotter-than-expected rate of 8.3% in August. That dashed hopes of a more rapid retreat for inflation that could have slowed the aggressive interest rate hikes rolling out from the Federal Reserve in its bid to cool scorching price increases.
Those hikes, while they will eventually tame inflation, also run the risk of a sharp decline in economic activity, growth, and jobs.
Britain’s FTSE 10 shed 1.1% at midday, Germany’s DAX lost 0.6% and the CAC 40 in Paris gave up 0.3%.
Tensions between the U.S. and China also weighed on markets. Chinese leader Xi Jinping and Russian President Vladimir Putin are due to meet later in the week, underscoring the warming ties between the two authoritarian governments as the West pushes ahead with sanctions against Moscow for its invasion of Ukraine.
The meeting will take place Thursday in Samarkand, Uzbekistan.
The U.S. is meanwhile reportedly considering new sanctions against Beijing aimed at deterring aggression against Taiwan, a self-governed island democracy that China claims as its own territory.
Hong Kong’s Hang Seng index lost 2.3% to 18,875.59 and the Shanghai Composite index declined 0.8%, to 3,237.54.
Tokyo’s benchmark Nikkei 225 lost 2.8% to 27,818.62, while Sydney’s S&P/ASX 200 declined 2.6% to 6,828.60. In Seoul, the Kospi lost 1.6% to 2,411.42.
On Tuesday, the Dow lost more than 1,250 points and the S&P 500 sank 4.3% after Tuesday’s hotter-than-expected report on inflation. The Nasdaq composite closed 5.2% lower.
Bond prices also fell sharply, sending their yields higher.
The yield on the two-year Treasury, which tends to track expectations for Fed actions, soared to 3.74% from 3.57% late Monday. The 10-year yield, which helps dictate where mortgages and rates for other loans are heading, rose to 3.42% from 3.36%.
Traders now see a one-in-three chance the Fed may hike its benchmark rate by a full percentage point next week, quadruple the usual move.
The Fed has already raised its federal funds rate four times this year, with the last two increases by three-quarters of a percentage point. The rate is currently in a range of 2.25% to 2.50%.
Higher rates hurt the economy by making it more expensive to buy a house, a car or anything else usually purchased on credit. Mortgage rates have already hit their highest level since 2008, creating pain for the housing industry. The hope is that the Fed can pull off the tightrope walk of slowing the economy enough to snuff out high inflation, but not so much that it creates a painful recession.
Tuesday’s data casts doubt on hopes for such a “soft landing.” Higher rates also hurt prices for stocks, bonds and other investments.
Expectations for a more aggressive Fed have also helped the dollar add to its already strong gains for this year. The dollar has been surging against other currencies in large part because the Fed has been hiking rates faster and by bigger margins than many other central banks.
That’s especially true for Japan, where the benchmark rate remains at minus 0.1%. The dollar bought 143.39 Japanese yen, down from 144.57 yen late Tuesday. The euro rose to 0.9996 cents, up from 0.9969 cents.
U.S. benchmark crude picked up 10 cents to $87.41 per barrel in electronic trading on the New York Mercantile Exchange. It lost 47 cents to $87.31 on Tuesday. Brent crude, the international pricing standard, gained 10 cents to $93.27 per barrel.
On top of inflation concerns, U.S.-China tensions and war in Ukraine, business and government officials are bracing for the possibility of a nationwide rail strike at the end of this week that could paralyze an already discombobulated supply chain.
The railroads have already started to curtail shipments of hazardous materials and have announced plans to stop hauling refrigerated products ahead of Friday’s strike deadline. Businesses that rely on Norfolk Southern, Union Pacific, BNSF, CSX, Kansas City Southern and other railroads to deliver their raw materials and finished products are planning for the worst.
Biden administration officials are scrambling to develop a plan to keep goods moving if the railroads shut down. The White House is also pressuring the two sides to settle their differences, and a growing number of business groups are lobbying Congress to be prepared to intervene and block a strike if they can’t reach an agreement.