Wall Street was subdued before the open Thursday ahead of another closely-watched inflation reading that comes a day after markets rallied on a strong retail sales report.
Futures for the Dow Jones industrials and ticked down 0.2% and the S&P 500 fell 0.3% less than an hour before the government releases data on wholesale prices and jobless claims.
Sales at U.S. retailers jumped by more last month than expected, even as shoppers contended with higher interest rates on credit cards and other loans. The surprising strength offers hope that the most important part of the U.S. economy, consumer spending, will remain resilient despite worries about a possible recession. It’s the latest piece of data to show the economy remains stronger than feared.
At the same time, strong demand could add more fuel to inflation, leading the Federal Reserve to keep interest rates high. A report earlier this week showed prices are cooling less than expected.
After Tuesday’s consumer prices report, economists at Deutsche Bank raised their forecast for how high the Fed will take its key overnight interest rate. They now see it ultimately rising to 5.6%, up from their prior forecast of 5.1%.
The Fed has already pulled its overnight rate all the way to a range of 4.50% to 4.75%, up from virtually zero a year ago.
The Deutsche Bank economists said they still expect a recession, but that the near-term strength in the economy could push its timing into the last three months of the year, later than they earlier thought.
Many other traders have also been raising their forecasts for how high the Fed will ultimately take interest rates. They’ve also sharply reduced bets for the Fed to cut rates late this year. The next big milestone for the market will likely be the Fed’s meeting in late March, when policymakers will give their latest forecasts for where interest rates will be at the end of the year.
At midday in Europe, France’s CAC 40 rose 1%, Germany’s DAX added 0.4% and Britain’s FTSE 100 inched up 0.2%.
In Asia, Japan’s benchmark Nikkei 225 gained 0.7% to finish at 27,696.44 after a key indicator showed Japanese machinery orders for December returned to growth after contracting in the previous month.
Australia’s S&P/ASX 200 rose 0.8% to 7,410.30. South Korea’s Kospi jumped 2.0% to 2,475.48. Hong Kong’s Hang Seng added 0.8% to 20,987.67, while the Shanghai Composite slipped 1.0% to 3,249.03.
In energy trading, benchmark U.S. crude added 9 cents to $78.68 a barrel in electronic trading on the New York Mercantile Exchange. It fell 47 cents to $78.59 on Wednesday. Brent crude, the international pricing standard, rose 3 cents to $85.41 a barrel.
In currency trading, the U.S. dollar fell to 133.88 Japanese yen from 134.16 yen. The euro cost $1.0700, up from $1.0690.