U.S. stocks and bonds rally after weaker-than-expected inflation data

U.S. stocks and government bonds rallied on Wednesday after data showed inflation in the world’s largest economy had stabilized, raising hopes the Federal Reserve may temper its aggressive rate hikes to bring it under control. soaring prices.

Consumer Price Index data released on Wednesday showed prices in the United States rose 8.5% year-on-year in July, a slower increase than in June and below economists’ forecasts. 8.7%. The figures also showed that on a monthly basis, there was no increase in the CPI in July, compared to a 1.3% rise in June.

The blue-chip S&P 500 gained 1.8% in the afternoon on Wall Street, while the tech-heavy Nasdaq Composite rose 2.4%.

Encouraged by the improving economic outlook, investors focused on consumer-focused stocks, with cruise lines Norwegian, Royal Caribbean and Carnival rising 14%, 11.6% and 11.4% respectively. Facebook owner Meta and Tinder owner Match Group were among the highest on the Nasdaq 100, with both gaining around 6%.

The S&P 500 has now climbed more than 14% since mid-June, and the moves put it on track to snap four straight days of losses.

The Vix volatility index, which is used to measure expected swings in US stocks, fell below 20 for the first time since April.

“Inflation has been expected to peak over the summer for some time, so it was reassuring to markets that there were clear signs that this appeared to be happening,” said Oliver Blackbourn, portfolio manager at Janus Henderson Investors.

In government bond markets, the 10-year US Treasury bond yield, which moves with inflation and growth expectations, fell 0.03 percentage points to 2.77%. The yield on the two-year note, which moves with interest rate expectations, fell 0.1 percentage point to 3.16%.

The U.S. dollar, a safe haven for investors in times of uncertainty, also fell in reaction to the data, losing 1.3% against a basket of six currencies.

The benchmark inflation index in the United States had reached 9.1% in June – the highest level in 40 years – prompting the Fed to make consecutive increases in interest rates of 0.75 points. percentage over the summer.

Yet inflation data shows prices remain well above the US central bank’s 2% target.

“While the spike in inflation is good news, it’s probably not enough to allow the Fed to ease its tightening or dispel recession fears,” said Mike Bell, global markets strategist at JPMorgan. Asset Management.

Core inflation, a measure of price growth that excludes volatile categories such as energy and food, also came in below expectations, remaining at the 5.9% level reached in June and well into below the peak of 6.5% reached in March.

“I think this could be a new bull market as opposed to a bear rally. The Fed will eventually pivot, the pace of increases will have to slow down,” said Patrick Spencer, vice president of equities at Baird.

However, others have warned that inflation remains high. “It’s good to see a fresher report coming in, but we’ll leave the champagne bottles capped for now,” said Brian Nick, chief investment officer at Nuveen. “It looks like a sudden reaction, reversing the falls after the unemployment report,” which showed the US labor market remained hot last Friday.

In Europe, the Stoxx 600 closed 0.9% higher and Germany’s Dax index gained 1.2% after losses in the previous session.

Declines in tech stocks dragged down indices in Asia, which closed ahead of the release of CPI data. Hong Kong’s Hang Seng closed down 2%, China’s benchmark CSI 300 of stocks listed in Shanghai and Shenzhen fell 1.1% and Japan’s Topix closed down 0.2%.

Comments are closed.