US inflation data lifts global equities; dollar falls

By Chris Prentice and Amanda Cooper

NEW YORK/LONDON (Reuters) -The dollar fell and major U.S. stock indexes rose on Tuesday on news that U.S. consumer inflation picked up less than expected in April when President Donald Trump unveiled a raft of tariffs that has wreaked havoc on global markets.

European shares edged higher for a fourth straight session, and global equities also gained.

Crude oil prices rose, boosted by a temporary cut in U.S.-China tariffs.

The U.S. and China said on Monday they would pause their trade war for 90 days, bringing down reciprocal duties and removing other measures while they negotiate a more permanent arrangement.

The agreement has reignited investor appetite for stocks, cryptocurrencies and commodities and Tuesday's inflation figures helped power that move.

The Bureau of Labor Statistics said its consumer price index rose 0.2% in April, bringing the annual increase down to 2.3% from 2.4%.

Economists polled by Reuters had forecast a monthly rise of 0.3% and a yearly rise of 2.4%.

The report was good news, said Bill Adams, chief economist for Comerica Bank in Dallas, in a note. "Inflation should be manageable for most consumers and businesses in 2025."

The S&P 500 and the Nasdaq advanced on the softer-than-expected inflation numbers and easing of U.S.-China trade tensions. The S&P 500 rose 42.36 points, or 0.72%, to 5,886.55 and the Nasdaq Composite rose 301.74 points, or 1.61%, to 19,010.09.

The Dow Jones Industrial Average fell 269.67 points, or 0.64%, to 42,140.43, under pressure from UnitedHealth's slide after the company suspended its annual forecast and its CEO stepped down.

The dollar pulled back from sharp gains in the prior session on the inflation data. It was last down 0.79% against a basket of currencies.

The euro rose up 0.94% at $1.1191.

"The report basically indicates that the Fed needs to be very cautious and that the stand that they have taken is probably the right course, for now," said Peter Cardillo, chief market economist at Spartan Capital in New York.

European shares ended slightly higher, ending up 0.1%, around their highest level since late March.

Emerging market stocks fell 5.03 points, or 0.43%, to 1,156.82.

MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.51% lower at 603.95, while Japan's Nikkei rose 1.43% to 38,183.26.

Following the Geneva talks over the weekend, the U.S. said it will cut tariffs on Chinese imports to 30% from 145%, while China said it will slash duties on U.S. imports to 10% from 125%.

The shift in U.S.-China trade relations has led traders to reduce their expectations for Federal Reserve rate cuts, as they believe policymakers may have more leeway to lower rates if the risks to inflation abate.

Traders are now pricing in 56 basis points of cuts this year, down from forecasts for over 100 basis points in April, when fears about the impact of Trump's tariffs were at their worst.

"The Fed has embarked on what seems to be the right course and unless there's any real movements in terms of trade war ending by June, it looks like a June rate cut remains in question," Cardillo said.

Economists, fund managers and analysts have said that while the 90-day pause is welcome, it has not changed the bigger picture.

"When all is said and done, tariffs will still be dramatically higher and will weigh on U.S. growth," said Christopher Hodge, chief U.S. economist at Natixis.

Ratings agency Fitch estimates the U.S. effective tariff rate is now 13.1%, a notable decline from 22.8% prior to the agreement but still at levels unseen since 1941 and above the 2.3% that prevailed at the end of 2024.

The benchmark U.S. 10-year note yield rose 1.6 basis points to 4.473%, and the 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 0.2 basis points to 4.004%.

In commodities, spot gold rose 0.61% to $3,253.51 an ounce. U.S. gold futures settled 0.6% higher at $3,247.80.

Brent crude futures settled at $66.63 a barrel, up $1.67, or 2.57%. U.S. West Texas Intermediate crude finished at $63.67, up $1.72 or 2.78%.

(Additional reporting by Stephen Culp in New York, Ankur Banerjee and Rocky Swift in Tokyo; Editing by Susan Fenton, Hugh Lawson, Tomasz Janowski, Rod Nickel and Richard Chang)