US stocks opened lower on Thursday after the latest producer inflation report showed stronger headline price pressures in August.
The data encouraged traders to increase bets on a Federal Reserve rate hike next week, while elevated oil prices added further pressure to market sentiment.
Wall Street Opens Lower After PPI Data
At 09:32 ET, the S&P 500 was down around 0.6% at 7,591.81 points.
The Nasdaq Composite fell about 1% to 25,997.21, while the Dow Jones Industrial Average declined roughly 0.5% to 52,125.87.
Technology stocks underperformed as investors reacted to higher inflation expectations and rising bond yields.
August PPI Shows Stronger Inflation Pressure
The main focus of Thursday’s session was the latest US Producer Price Index report.
According to the Bureau of Labor Statistics, headline PPI increased by 0.4% month-on-month in August, matching expectations.
On an annual basis, producer prices rose 5.4%, slightly above the 5.3% forecast.
July’s figures were also revised higher. Monthly PPI was adjusted to a 0.1% increase, while annual inflation was revised to 4.8%.
Core PPI Comes in Slightly Softer
Core producer inflation was somewhat less aggressive.
Excluding more volatile components, core PPI increased by 0.2% month-on-month and 4.6% year-on-year.
Markets had expected monthly core inflation of 0.3% and an annual increase of 4.6%.
Although the core reading was slightly softer, the acceleration in headline inflation kept concerns about persistent price pressures firmly in focus.
Energy Costs Drive Producer Prices Higher
A large part of the increase came from higher goods prices.
The index for final demand goods rose 1.1% in August.
More than three-quarters of that broad increase was linked to higher final demand energy prices.
The sharp rise in energy costs has become a growing concern for investors because it could keep inflation elevated for longer.
Fed Rate Hike Odds Jump
The PPI report arrived one day before the more closely watched Consumer Price Index release.
It also followed a strong August nonfarm payrolls report, reinforcing the view that the US economy and labor market remain resilient despite high borrowing costs.
That combination has strengthened expectations for tighter Federal Reserve policy.
According to the CME FedWatch Tool, the probability of a 25-basis-point rate increase at the September 16 Federal Open Market Committee meeting climbed to around 74%.
Before the PPI release, the probability stood closer to 64%.
Treasury Yields Rise as Bonds Sell Off
US Treasury yields moved sharply higher following the inflation data as investors sold government bonds.
The benchmark 10-year Treasury yield rose around 8.4 basis points to 4.921%.
The more rate-sensitive 2-year yield increased by roughly 8.5 basis points to 4.512%.
Higher yields can pressure equities because they raise borrowing costs and make fixed-income investments more attractive compared with stocks.
Treasury Buyback Disappoints Investors
Bond markets had already been under pressure during the previous session.
The US Treasury announced plans to repurchase up to $6 billion of securities with maturities between 10 and 20 years.
That figure was three times larger than its previous target.
However, some investors had expected buybacks of as much as $10 billion, leaving the announcement below market expectations.
The Treasury had previously signaled plans to increase longer-dated bond repurchases in an attempt to improve market liquidity during a period of elevated yields.
Oil Above $100 Adds to Inflation Concerns
Energy prices remain another major source of uncertainty.
Brent crude recently moved above $100 per barrel for the first time since July and traded above $102 during Thursday’s session.
Escalating tensions between the United States and Iran have raised concerns about potential disruptions to oil shipments through the Strait of Hormuz.
Higher crude prices could feed into transportation, manufacturing and consumer costs, making inflation more difficult for central banks to control.
ECB Also Raises Interest Rates
The European Central Bank faced similar concerns over energy-driven inflation.
ECB policymakers raised interest rates on Thursday as they attempted to prevent higher energy costs from creating broader inflationary pressure across the Eurozone.
The move added to signs that major central banks may remain focused on fighting inflation even as global growth risks persist.
Oracle and Adobe Earnings in Focus
Investors are also watching the corporate earnings calendar.
Oracle and Adobe are scheduled to report quarterly results after the closing bell.
Their earnings could offer additional insight into the strength of spending on artificial intelligence infrastructure and enterprise technology.
Apple Shares Remain in Focus
Apple also attracted attention after unveiling its first foldable iPhone at the company’s first major product event under CEO John Ternus.
Apple shares had finished the previous session around 0.3% lower.
The company’s latest hardware announcements will remain under scrutiny as investors assess whether new premium devices can support future revenue growth.
For now, Wall Street remains focused on inflation, Federal Reserve policy and Treasury yields.
Friday’s CPI report could become the next major catalyst for US stocks and bonds ahead of the Fed’s upcoming interest-rate decision.
