S&P 500 futures hover at record high as investors shrug off surging inflation, while bond yields fall to 3-month lows

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Sentiment was bullish on Wall Street on Thursday after the inflation data.

S&P 500 futures hovered near a record high on Friday after data showed that US inflation surged more than expected in May, but weekly jobless claims fell to a pandemic-era low.

Bond yields fell back to their lowest level since March, in a sign that the market believes strong inflation will prove transitory, as the Federal Reserve has long argued.

S&P 500 futures rose 0.06% on Friday morning in Europe to trade at around a record high. The underlying index scaled new heights a day earlier, rising 0.47%.

Dow Jones futures rose 0.12% after the index eked out a small gain on Thursday. Nasdaq 100 futures were roughly flat, following a 1.05% jump for the index a day earlier.

US consumer price index inflation surged 5% year on year in May, figures released on Thursday showed, higher than the 4.7% rise economists were expecting. Inflation rose 0.6% from April to May, however, lower than the 0.8% jump from March to April.

In a reversal of recent trends, bond yields fell and helped push stocks higher as investors appeared to shrug off the surge in prices.

“Those fearing a new inflationary era are rubbing their eyes this morning as the hottest US core CPI print in decades saw US Treasuries first sell-off, only to rally and see yields close at new lows for the recent cycle,” Steen Jakobsen, chief investment officer at Saxo Bank, said.

US bond yields, which move inversely to prices, continued to fall in Europe. The yield on the key 10-year US Treasury note fell 2.2 basis points to 1.437%, its lowest since early March.

The fall in bond yields is a sign that many investors think hot inflation will be a passing phase. Yields tend to rise along with inflation expectations, as buyers demand a stronger return to account for higher prices in the economy.

Lower yields by and large support stocks – especially in the tech sector – as they lower borrowing costs and send investors searching for stronger returns in the equity market.

Mark Haefele, chief investment officer at UBS Global Wealth Management, said: “We do not expect a more sustained disruption to equity markets.” He added: “We agree with the Fed that elevated inflation pressures will prove short-lived. In our view, investors should continue to position for reflation.”

European stocks climbed on Thursday, with the continent-wide Stoxx 600 up 0.37% in early trading. The UK’s FTSE 100 rose 0.58% after data showed the economy grew 2.3% in April.

In Asia overnight, China’s CSI 300 fell 0.89% while Japan’s Nikkei 225 slipped 0.03%.

Oil prices continued to rise, aided by signs of recovery in advanced economies. Brent crude climbed 0.21% to $72.68 a barrel, while WTI crude rose 0.18% to $70.41 a barrel.

Bitcoin hovered at around $37,000 after rising sharply over the previous two days. The decision by El Salvador to make bitcoin legal tender boosted investor optimism.