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Wall Street cheers cool CPI with stock rally; dollar, yields decline
Global Banking & Finance Review®
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By Lawrence Delevingne
(Reuters) -Wall Street stocks advanced on Wednesday and the dollar and Treasury yields fell after new U.S. inflation data showed a slowdown in the seemingly relentless rise of consumer prices.
The Consumer Price Index (CPI) gained just 0.2% last month, the Labor Department said on Wednesday, lifted by rises in gasoline prices as well as rents, which offset a decrease in prices of used motor vehicles. CPI advanced 3.0% in the 12 months through June, down from 4.0% in May and the smallest year-on-year increase since March 2021.
Wall Street cheered the news, sending stocks up. The Dow Jones Industrial Average rose 0.26%, the S&P 500 gained 0.75% and the Nasdaq Composite added 1.15%. Shares of big tech-related companies, which tend to be sensitive to higher interest rates, gave the S&P 500 its biggest boost.
U.S. stock gains helped push up MSCI’s main 47-country world index, which is now around 14% higher for the year, bouncing back from rate hike-induced lows in late 2022.
“The trend that investors have been waiting for is finally here, softer Core CPI prints or hints of pre-COVID normality,” Alexandra Wilson-Elizondo, deputy chief investment officer of Multi Asset Solutions at Goldman Sachs Asset Management, said in an email, echoing positive analyst sentiment.
The currency market moved on the CPI news, too. The dollar index declined 1.18% to $100.536, near its lowest point in a year.
The yen had clambered back near 140 to the dollar, up around 1.4%, and sterling hit a 15-month high, up 0.45% on the day, as the Bank of England said the UK was coping with higher interest rates. [/FRX][GVD/EUR]
U.S. Treasury yields also dropped, with the 10-year Treasury yield now at 3.865%, down 11.9 basis points. The two-year, which typically moves in step with interest rate expectations, was down 15.2 basis points at 4.744%.
Wednesday’s moves saw euro zone bond yields decline, with Germany’s 10-year yield dipping to 2.552%, having touched a four-month high of 2.679% on Monday.
“The bond market finally got the relief from inflation it was hoping for,” Bryce Doty, senior portfolio manager at Sit Investment Associates in Minneapolis, said in an email.
Markets are pricing in a 92% chance of a 25-basis-point Fed hike this month, the CME FedWatch tool showed, but remain doubtful about further hikes after that.
Overnight in Asia, Australia’s S&P/ASX 200 index rose 0.4%, while the bouncing yen knocked Japan’s Nikkei down 0.8%. Bluechip Chinese shares fell 0.8% as tech stocks there jolted 2.5% lower amid renewed concerns about Beijing’s attitude to the sector.
Second-quarter U.S. earnings start to roll in this week, with heavyweight banks JPMorgan, Citigroup and Wells Fargo kicking things off as usual. Wall Street banks overall are expected to report higher profits as rising interest payments offset a downturn in deal making.
Scott Wren, senior global market strategist at the Wells Fargo Investment Institute, said that general earnings expectations might be too high.
“We believe investors have decided, so far, that they are willing to pay more for lower earnings this year and are discounting the effects of higher-for-longer rates,” Wren wrote in a note. “We think that is a mistake.”
Oil benchmark Brent futures breached $80 a barrel for the first time since May on Wednesday. U.S. crude ended up 1.5% to $75.95 per barrel and Brent was at $80.33, up 1.17% on the day as of 2000 GMT. [O/R]
Spot gold added 1.3% to $1,957.89 an ounce.
(Reporting by Lawrence Delevingne in Boston and Marc Jones in London; additional reporting by Ankur Banerjee in Singapore and Carolina Mandl in New York; editing by Jan Harvey, Chizu Nomiyama, Will Dunham and Mark Heinrich)
The Consumer Price Index (CPI) measures the average change over time in the prices paid by consumers for a basket of goods and services, reflecting inflation levels.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power.
The stock market is a collection of markets where shares of publicly held companies are issued and traded, allowing investors to buy and sell ownership in businesses.
The dollar index measures the value of the U.S. dollar relative to a basket of foreign currencies, indicating its strength in the global market.
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