U.S. equity futures were pointing to a weaker start as markets digested data indicating wholesale price pressures had risen faster than anticipated. The Labor Department reported the Producer Price Index (PPI) increased 5.4% on an annual basis in August, slightly above the 5.3% economists had expected. The report arrived against a backdrop of heightened geopolitical friction in the Middle East and disruptions to key maritime passages.
Energy markets reacted strongly to the geopolitical backdrop. Oil prices climbed roughly 3% to above $100 a barrel for the first time since July, tightening the outlook for corporate margins and consumer prices. U.S. West Texas Intermediate crude breached the $100 threshold and was last reported up 4.61%. Those moves add to concerns that higher energy costs will filter through to broader inflation measures.
Commenting on the PPI, Brian Jacobsen, chief economic strategist at Annex Wealth Management, highlighted the role of diesel in the latest readings. "Diesel is driving producer inflation and it has no signs of slowing down. Hiking rates could make it more expensive to finance expanding diesel production capacity," he said.
While the PPI generally draws less attention than the Consumer Price Index - which is scheduled for release the following day - market participants have been closely parsing any data that could influence monetary policy now that the central bank has ceased providing explicit forward guidance. Two-year Treasury yields, which are sensitive to expectations for near-term monetary policy, jumped to 4.490%, a level not seen since 2024.
Interest rate markets quickly adjusted to the new data. Traders priced in roughly a 70% probability that the Federal Reserve will raise interest rates by at least 25 basis points at its upcoming meeting, up from about a 64% chance before the PPI release, according to the CME FedWatch tool. Jacobsen remarked that, if the Fed does move next week, it may be intended more as a statement of independence and credibility than as a cure for inflationary pressures.
At 8:45 a.m. ET, futures were lower across major U.S. indices. Dow E-minis were down 171 points, or 0.33%, S&P 500 E-minis were down 43 points, or 0.56%, and Nasdaq 100 E-minis were lower by 360.25 points, or 1.22%.
Bond market developments have exerted additional pressure on equities. The Treasury Department announced plans to buy up to $6 billion in longer-dated Treasury bonds in an effort to temper rising yields. Despite that intervention, the yield on the benchmark 10-year U.S. Treasury was at 4.901%, its highest level since 2023.
Analysts suggested the Treasury’s operations may only have limited short-term effect on long-end rates. "It’s early days. But markets may be telegraphing to (Treasury Secretary Scott) Bessent that it will be tough for him to have meaningful control over long-end rates," wrote strategists at ING. Kyle Rodda, senior financial market analyst at Capital.com, added that while buybacks or targeted purchases can have a temporary impact, meaningful and lasting reductions in long-term yields would require substantive macro policy shifts, such as a pullback in government spending or a further change in Fed policy.
Equities were mixed among individual names in premarket trade. Macy’s was volatile and last down about 4% after the department-store operator raised its full-year forecasts, citing stronger results at its higher-end Bloomingdale’s and Bluemercury divisions. American Eagle Outfitters slid sharply, down 14.5%, after the retailer maintained its annual comparable sales target and warned that gross margins in the current quarter may be unchanged from a year earlier. Apple inched up 0.3% a day after it unveiled a new folding iPhone priced at $1,999.
What this means for markets
The combination of faster-than-expected wholesale price growth, a renewed surge in oil prices, and higher Treasury yields created a more cautious near-term tone for risk assets. Financial markets are closely watching incoming inflation prints as potential drivers of Federal Reserve action and as determinants of Treasury yields, both of which have important implications for valuations and cost of capital across sectors.
With the labor and consumer inflation data due imminently, investors remain on alert for any signs that price pressures are broadening or intensifying.