By Tharuniyaa Lakshmi and Niket Nishant
Sept 10 (Reuters) - Wall Street's main indexes were set for a lower open on Thursday after data reinforced concerns that price pressures were rising faster than expected against the backdrop of an escalating conflict in the Middle East.
Oil prices advanced 3% to over $100 a barrel for the first time since July, clouding the outlook for equities and reinforcing expectations that interest rates could be raised this month, as supply routes through both the Strait
of Hormuz and the Red Sea remained heavily disrupted by the six-month-old war that has shown little sign of easing.
U.S. West Texas Intermediate crude also went past $100 a barrel and was last up 4.61%.
Echoing that costs were on the rise, a Labor Department report showed that the Producer Price Index (PPI) rose 5.4% in August on an annualized basis, a touch higher than the 5.3% economists polled by Reuters had expected.
"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," Brian Jacobsen, chief economic strategist at Annex Wealth Management, said.
Although the PPI report typically gets less attention than the Consumer Price Index, which will be published on Friday, all economic indicators are under greater scrutiny ever since the central bank stopped issuing guidance on monetary policy.
Two-year Treasury yields, which move in lockstep with interest rate expectations, jumped to 4.490%, their highest since 2024.
Traders now see a 70% chance the Federal Reserve will hike interest rates by at least 25 basis points next week, up from about 64% before Thursday's report, the CME FedWatch tool showed.
"If the Fed hikes next week, it should be a symbolic hike to assert its independence and build credibility and not in the hope that it will actually fix the inflation problem," Jacobsen said.
At 8:45 a.m. ET, 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 down 360.25 points, or 1.22%.
HIGH TREASURY YIELDS BITE
Equities have also come under pressure from elevated yields on risk-free U.S. Treasuries. The Treasury Department said on Wednesday it would buy up to $6 billion in longer-dated Treasury bonds as part of an effort to keep yields under control.
However, the yield on the benchmark 10-year U.S. Treasury was at 4.901%, its highest since 2023. "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," ING strategists wrote.
Developments in the bond market have implications for stocks, as higher yields on risk-free U.S. Treasuries can make equities relatively less attractive.
"While an even more muscular attempt to lower yields may have had a better chance of working, their rise illustrates the marginal and short-term impact of buybacks," said Kyle Rodda, senior financial market analyst at Capital.com.
"Ultimately, a sustained drop in long-end yields can only be achieved by genuine shifts in macroeconomic policy: either the U.S. government pulling back on spending or the Fed lifting rates."
Among top movers, Macy's was volatile and was last down 4% in premarket trading. The department-store operator raised its annual forecasts after stronger performance at its upmarket Bloomingdale's and Bluemercury chains.
American Eagle Outfitters fell 14.5% as the company stuck to its annual comparable sales forecast and said gross margins in the current quarter could be unchanged from a year earlier.
Apple inched up 0.3% a day after it launched Duo, a folding $1,999 iPhone.
(Reporting by Niket Nishant, Tharuniyaa Lakshmi and Johann M Cherian in Bengaluru; Editing by Sherry Jacob-Phillips and Maju Samuel)
