ASX set for bright start as Wall Street jumps

Stocks are rising as Wall Street waits for a report to show whether inflation is continuing to cool or perhaps setting the market up for worse pain.

The S&P 500 was 1.1 per cent higher ahead of Tuesday’s report on inflation at the consumer level across the country. It’s coming off its worst week in nearly two months.

The Dow Jones Industrial Average was up 323 points, or 1 per cent, at 34,193, as of 12:54 p.m. Eastern time, while the Nasdaq composite was 1.5 per cent higher. The Australian sharemarket is set to rise with futures at 5.04am AEDT pointing to a rise of 41 points, or 0.6 per cent, at the open. The ASX fell by 0.2 per cent on Monday.

High inflation and the Federal Reserve’s response to it with higher interest rates have been at the centre of Wall Street’s sharp moves for more than a year. The Fed has aggressively hiked rates to their highest level since the dawn of the Great Recession to drive down the worst inflation in generations. High rates can stamp out inflation, but they do so at the risk of sending the economy into a sharp recession and dragging on investment prices.

Economists expect Tuesday’s report to show inflation slowed to 6.2 per cent in January. That would be down from 6.5 per cent a month before and from a peak of more than 9 per cent in the summer. Perhaps more important than the overall number is what the data show about prices for services outside of housing, such as haircuts or airfares. Inflation has remained stubbornly high there, when it’s started to come down in other areas.

A worse-than-expected reading would raise worries that the Federal Reserve will stay firmer on rates than expected, which could mean more pain for Wall Street. Cooler-than-expected figures, meanwhile, could fan anew hopes that were rising earlier this year for the Fed to take it easier on rates.

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Treasury yields jumped last week after investors pulled their forecasts for rates closer to the Fed’s, which has been saying that it plans to keep rates higher for longer to ensure the job is done on inflation.

Yields were relatively steady on Monday ahead of the inflation report. The yield on the 10-year Treasury, which helps set rates for mortgages and other important loans, dipped to 3.72 per cent from 3.75 per cent late Friday. The two-year yield, which tends to move more on expectations for the Fed, was at 4.54 per cent and close to its highest since November.