Futures For U.S. Stocks Reach Three-Week Highs On Rising Inflation Expectations

After the news of lower European inflation pushed bond yields lower Thursday after news of softer European inflation pushed U.S. stock futures higher to a three-week high.

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What is the trading pattern for stock-index futures?

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It is worth noting that on Wednesday, the Nasdaq Composite gained 210 points, or 1.79%, to 11926, while the Dow Jones Industrial Average rose 323 points, or 1%, to 32718, and the S&P 500 gained 57 points, or 1.42%, to 4028 on Wednesday.

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There are several factors driving the market at the moment

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As investors returned to a risk-on approach, markets on Wednesday were buoyed by another day without any unwelcome surprises from the banking sector, said Richard Hunter, head of markets at Interactive Investor.

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As worries about the financial sector have abated, the S&P 500 closed above the 4,000 mark on Wednesday, returning to levels seen before the Silicon Valley Bank troubles gained widespread attention three weeks ago. Click here to learn more about Silicon Valley Bank's problems.

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The CBOE VIX index has hit the lowest level in almost a month, and the index sits around 19 right now. It's the gauge of expected stock market volatility.

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This suggests that investors are rebuilding confidence among themselves who were shaken by the rapid unfolding of issues concerning a few U.S. and European banks and expectations for interest rates swerving in a new direction as the situation has gotten worse," said Russ Mould, investment director for AJ Bell.

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In the absence of any banking drama, traders were able to focus on inflation and the prospects for monetary policy from the Federal Reserve in the coming months.

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There will be another economic test on Friday, as the Federal Reserve's preferred measure of inflation, the personal consumption expenditure index, is released. Hunter added that the Fed's goal of taming inflation has not yet been achieved, as the number is expected to have moderated further, albeit still at levels that will indicate that the Fed has not quite succeeded in taming inflation yet.

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There is no doubt that the better news about inflation out of Europe on Thursday has boosted sentiment even further.

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A sharp drop in the yields on German ten-year bunds contributed to the CPI declining by 3.4 basis points this week to 3.544% after preliminary data showed that consumer prices in German regions were rising at a slower pace than expected, while inflation in Spain also declined more than expected.

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At 8:30 a.m. Eastern time on Thursday, the U.S. will release its weekly initial jobless claims report and its second revision to the fourth quarter Gross Domestic Product report for the week ending March 31.

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A number of Fed officials are also scheduled to speak at the meeting. A couple of the Fed's top officials will take the podium at 12:45 p.m., and Minneapolis Fed President Kashkari will speak at 1 p.m. Boston Fed President Collins and Richmond Fed President Barkin will speak at 12:45 p.m.

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A report on bank lending will be released by the Fed at 4.30 p.m. as part of its H.4.1 report.