US STOCKS-S&P 500 eyes muted open as hot inflation data signals rates to stay on hold

By Ragini Mathur and Utkarsh Hathi

May 13 (Reuters) - The S&P 500 was set for a subdued open on Wednesday, as hotter-than-anticipated producer prices reinforced bets that the Federal Reserve would keep monetary policy restrictive all through this year.

U.S. producer prices increased more than expected in April, posting their biggest gain since early 2022, the latest indication that inflation was accelerating amid the war with Iran.

The data comes a day after U.S. consumer inflation posted the sharpest increase in three years in April and knocked the S&P 500 .SPX and the Nasdaq .IXIC from their record highs.

"This is very challenging data in terms of inflation and it just simply means that Mr. (Kevin) Warsh is not likely to move on cutting rates anytime soon, and perhaps for the remainder of the year," said Peter Cardillo, chief market economist at Spartan Capital Securities.

Traders are now seeing 11 basis points of policy tightening by December, compared with 9.3 bps of hikes seen before the producer prices reading, according to LSEG data.

Markets are expecting a potentially more hawkish central bank under Kevin Warsh, whom the Senate confirmed to the board on Tuesday and could move to approve as chair as soon as Wednesday. Jerome Powell's term ends on Friday.

Meanwhile, President Donald Trump landed in Beijing accompanied by an entourage that included Nvidia's Jensen Huang and Elon Musk, after pledging to urge China's Xi Jinping to "open up" to U.S. business at the start of their two-day summit.

Trump had said ahead of the high-stakes summit that he did not expect to ask Xi to help resolve the conflict with Tehran.

Oil prices inched lower on the day after rising for three straight sessions as investors awaited any updates on the Iran front.

Wall Street has been wary that a prolonged conflict could keep energy prices elevated, adding to inflationary pressures and complicating the U.S. Federal Reserve's policy decisions.

At 08:46 a.m. ET, Dow E-minis YMcv1 were down 252 points, or 0.51%, S&P 500 E-minis EScv1 were down 2 points, or 0.03%, and Nasdaq 100 E-minis NQcv1 were up 91 points, or 0.31%.

A chip-stock selloff that weighed on markets in the previous session looked set to stabilize on Wednesday, with memory-chip makers leading the recovery.

Micron Technology MU.O jumped 5.1%, Western Digital WDC.O rose 2.1%, Seagate STX.O gained 1.3% and SanDisk SNDK.O climbed 3.3% in premarket trading.

Among other movers, Nebius Group NBIS.O jumped 16.3% after the AI cloud firm reported a nearly eightfold rise in quarterly revenue.

Retail sales figures later in the week will also be scrutinized for evidence that higher gasoline and energy costs are starting to squeeze other areas of consumer spending.

Earlier in the day, Morgan Stanley raised its annual target for the S&P 500 index to 8,000 from 7,800, saying U.S. stocks have enough room to rally as companies continue to post strong earnings.