Futures decline as soaring oil prices deepen inflation woes

[September 28, 2023]  (Reuters) - U.S. stock index futures slipped on Thursday as soaring oil prices cemented the prospects for a prolonged restrictive monetary policy, while investors awaited economic data and Federal Reserve Chair Jerome Powell's remarks during the day.

The scope for interest rates staying higher for longer than anticipated has only solidified with soaring energy prices keeping headline inflation elevated. Deepening such concerns, U.S. oil futures jumped to a more than one-year high on Thursday.

"Another leg up in oil prices has added to the market worries about sticky inflation, thereby stoking fears that interest rates will stay higher for longer," said Russ Mould, investment director at AJ Bell.

"The market is worried that supplies of oil are going to be tight and if prices keep going, it is going to cause a real headache for businesses and consumers."

Riding on the back of higher crude prices, energy is set to emerge as the only major S&P 500 sector to notch monthly gains. Meanwhile, rate-sensitive information technology and real estate were on track to be the worst hit.
 

As the 10-year Treasury yield held its 16-year high, megacap growth stocks including Apple, Microsoft, Amazon.com and Tesla shed between 0.3% and 0.8%.

At 5:23 a.m. ET, Dow e-minis were down 68 points, or 0.2%, S&P 500 e-minis were down 8.5 points, or 0.2%, and Nasdaq 100 e-minis were down 47.5 points, or 0.32%.

The S&P 500 and the Nasdaq are set for their worst monthly showing so far this year as Treasury yields embarked on a path to multi-year highs on uncertainty around the interest rates trajectory. All the three indexes, including the Dow, are set for their first quarterly decline in 2023.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., September 26, 2023. REUTERS/Brendan McDermid/File Photo

Traders' bets on the benchmark rate remaining unchanged in November and December stood around 77% and 58%, respectively, according to CME's FedWatch tool. Meanwhile, a 25-basis-point rate cut is being priced in as early as March, growing to over 31% in June and July.

All eyes will be on the final gross domestic product estimate and weekly jobless claims - due at 8:30 a.m. ET - to gauge the strength of the U.S. economy and the labor market.

Investors will also monitor remarks from Powell at 4 p.m. ET, with voting members Chicago Fed President Austan Goolsbee and Board Governor Lisa Cook also set to take the stage during the day.

With a partial government shutdown just three days away, a procedural vote on a bipartisan short-term spending measure by the Senate on Thursday will be on the watch list.

Among individual movers, Micron Technology dropped 4.9% after forecasting bigger-than-expected first-quarter loss.

(Reporting by Ankika Biswas; Editing by Maju Samuel)

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