Stocks rise as US inflation trends decline, and bond yields decline

  • US inflation is slowing, but price pressures remain strong
  • The data is seen as a sign that the Fed is winning the inflation battle
  • Yields decline after US consumer price data
  • Currency markets are stable

SINGAPORE (Reuters) – A gauge of global stock markets rose and bond yields fell on Wednesday after data showed that US consumer prices rose in April at a slightly slower pace than expected, suggesting the Federal Reserve was succeeding in taming high inflation. .

The Labor Department said its Consumer Price Index rose 0.4% after rising 0.1% in March. But in the 12 months through April, the consumer price index rose 4.9%, less than the 5.0% year-on-year increase in March that a Reuters poll of analysts had also predicted.

Futures showed that the probability of the Fed raising interest rates again in June fell to 6.1% from 21.9% just before the data release, according to CME Group’s FedWatch tool. The odds of the Fed cutting interest rates later this year also increased.

The economy remains strong and inflation slowing to the Fed’s 2% target will take time, said Johann Grahn, chief ETF market strategist at Allianz Investment Management in Minneapolis.

“On the back of another strong March jobs report, the unemployment rate at 3.4%, 9.5 million jobs and still hot wage growth, the Fed is likely to remain focused on its deflationary agenda for the coming months,” Grahn said.

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“The Fed does not aim to set correct rate policy at the right time, but rather to correct it over time,” he said.

Shelter, a large component of the consumer price index, came in slightly weaker, said Priya Misra, head of global price strategy at TD Securities in New York, which gave markets relief as some people were looking for a stronger number.

“There’s a big caveat,” she said, “it came weaker because of the hotels, not because of the rents.” “The market could be cheering up here because inflation is on the way down. It is, but we think it’s going to be a little sticky on the way down.”

Consumer prices slowed to 4.9% year over year, the 10th consecutive month of slowdown as prices react to the Fed’s rate tightening cycle.

The two-year Treasury yield, which usually moves according to interest rate expectations, fell from 4.05% before the CPI news and fell to 3.908%. The benchmark 10-year note fell 8.1 basis points to 3.441%.

The dollar fell on expectations that the Federal Reserve will stop raising interest rates to curb rising inflation, while crude oil futures gave up their initial gains after the release of the data due to fears of rising US inventories that showed weak demand.

The dollar index fell 0.20% and stock markets rose as consumer price index data indicated that the Fed’s steepest rate hikes in four decades were paying off.

The MSCI Worldwide US Stock Index (.MIWD00000PUS) closed up 0.20%, while the pan-European STOXX 600 Index (.STOXX) closed down 0.38%.

Stocks on Wall Street were mixed. The Dow Jones Industrial Average (.DJI) was down 0.09%, the S&P 500 (.SPX) was up 0.45%, and the Nasdaq Composite (.IXIC) was up 1.04%.

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The Nasdaq got a 4.1% boost in Alphabet (GOOGL.O) as the company launched more artificial intelligence for its basic search product in response to competition from Microsoft Corp (MSFT.O), which rose 1.7%.

Headwinds still loomed for the world’s largest economy, as detailed talks on raising the US government’s $31.4 trillion debt ceiling began on Wednesday. The US Treasury warned that a destabilizing default could come as soon as June 1.

China crisis

The foreign exchange markets were doing well as markets were weighing the rhetoric of policy makers against the conviction of traders that US interest rates should come down.

European Central Bank (ECB) Governing Council member Mario Centeno said on Wednesday that the ECB’s main interest rate is nearing its peak, but that further adjustments are still necessary, adding that he expects interest rates to start easing sometime next year.

The euro rose 0.19 percent to $1.0981.

China’s weak import figures for April sent Chinese and Hong Kong stocks lower for the second straight session, as investors fear the market’s rebound from reopening the economy is fading into an uneven recovery.

Hong Kong’s Hang Seng fell 1.3% and the yuan fell to a two-week low.

A crackdown on corporate due diligence appears to be irritating the sector and upsetting investors. Reuters reports that CICC Capital, a unit of leading Chinese investment bank China International Capital Corp (3908.HK), has stopped using advisory firm Capvision.

US crude futures fell 1.6 percent to settle at $72.56 a barrel, and Brent crude closed down 1.3 percent at $76.41 a barrel.

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Gold prices fell as CPI data was seen as mixed and led to profit-taking by some investors.

US gold futures settled down 0.3%, at $2,037.10 an ounce.

Editing by Simon Cameron Moore

Our standards: Thomson Reuters Trust Principles.

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