ASX set to rise, Wall Street climbs as oil prices slide and pressure from the bond market eases

US stocks are rising and recovering most of their losses for the week.

Falling oil prices and easing pressure from the bond market helped Wall Street reverse many of its moves from the prior day, when the Federal Reserve hiked its main interest rate for the first time in years and suggested more may be ahead as it tries to get the nation’s high inflation under control.

The S&P 500 climbed 1.1 per cent and was on track for just its second rise in the last nine days. The Dow Jones Industrial Average was up 358 points, or 0.7 per cent, and the Nasdaq composite was 1.6 per cent higher.

The Australian sharemarket is set to rise, with futures at 4.57am AEST pointing to a gain of 57 points, or 0.7 per cent, at the open. The ASX added 0.4 per cent on Thursday. The Australian dollar was stronger at US71.11¢.

Stocks got a boost after the price for a barrel of Brent crude oil slid 1 per cent to $US104.79. That’s down sharply from the nearly $US110 it reached earlier in the week on worries that the war with Iran will keep oil bottled up in the Middle East instead of going to customers worldwide.

Brent is of course still much more expensive than the $US72 per barrel that it cost earlier this year, but Thursday’s slide helped pull yields lower in the bond market and removed some pressure on stocks. The yield on the 10-year Treasury fell to 4.95 per cent from 5.01 per cent late Wednesday.

Higher yields make it more expensive for everyone to borrow money, from the US government to people looking to buy houses to businesses wanting to build data centers. That in turn slows the economy.

The Fed on Wednesday raised the short-term interest rate that it controls, the federal funds rate, by a quarter of a percentage point for its first hike in more than three years. Officials also indicated at least one more increase may be coming this year and that the Fed may then keep the federal funds rate high through next year.

The signals sent Wall Street on a roller coaster. Stocks initially held onto their gains from earlier in the day after the Fed made its announcement Wednesday. They then slid sharply before recovering a chunk of the losses before trading ended for the day.

On the upside for markets, the shift to higher interest rates built confidence that the Fed is committed to getting inflation back to its target of 2 per cent. Questions had begun to bubble in the summer about whether it would feel pressure from President Donald Trump, who is calling for lower interest rates. And the short-term cost of pain for the economy could be worth it if it gets inflation under control following years of staying too high.

On the downside for markets, higher rates undercut prices for stocks and other investments. When investors are earning more in interest from owning bonds, which are considered safer investments, they’re less willing to pay high prices for other kinds of investments. That’s beyond the effect higher rates have on slowing the economy in hopes of removing fuel for inflation.

Some reports on Thursday signalled the US economy may be strong enough to withstand higher interest rates. One said fewer US workers applied for unemployment benefits last week.