Wall Street Rises As US Inflation Falls Below Expectations
The US benchmark S&P 500 and tech-heavy Nasdaq Composite rose 0.3% and 0.2%, respectively, after US inflation fell below expectations. The US Consumer Price Index report showed a year-on-year inflation slowdown to 4% in May, lower than last month’s 4.9% figure. This resulted in investor bets that the Federal Reserve wouldn’t raise interest rates during its meeting this week. Investors have a 95% chance of the Fed resisting interest rate hikes, an increase from the previous 77% estimate before the data was released. This provides an opportunity for policymakers to reconsider their tightening campaign amid rising inflationary pressures.
Stoxx 600 and Dax Rise In Europe
In Europe, the regional Stoxx 600 index rose 0.5%, with Germany’s Dax adding 0.6%. France’s Cac 40 also gained 0.5%. This follows the ZEW Institute’s economic sentiment index of Germany’s report, which showed an improvement from minus 10.7 in May to minus 8.5 in June, surpassing the consensus forecast of minus 13.1. Despite this, economists are still hopeful that the European Central Bank will raise its deposit rate by another quarter of a percentage point during a meeting on Thursday.
UK Payrolls Surge, Raising Interest Rate Hike Chances
In the UK, robust payroll data pushed short-term gilt yields above the level of that seen during the turmoil caused by former Prime Minister Liz Truss’s ‘mini’ budget in the autumn. This surge raises the likelihood that the Bank of England will raise rates further. “With all the signs suggesting that inflationary pressures are not easing and could very well build against BoE expectations, the [labour market] data will send shockwaves through Threadneedle Street,” said Nick Rees, forex market analyst at Monex Europe. The two-year gilt yield climbed to 4.86%, up 0.23 percentage points from the late-September peak of 4.64%.
Asian Stocks Rise After Cut In Repurchase Rate by People’s Bank of China
Asian stocks, including China’s CSI 300 index and Hong Kong’s Hang Seng index, rose on Tuesday. The People’s Bank of China had cut its seven-day reverse repurchase rate by 0.1 percentage points to boost short-term liquidity. Japan’s Topix index also rose 1.2%, with South Korea’s Kospi adding 0.3%.
Additional Piece
The recent increase in inflation continues to influence investor sentiment, with many monitoring the global market shifts for the slightest indication of the economy’s growth trajectory. While many continue to speculate about the US Federal Reserve’s next move, the Bank of England appears to be gearing up to increase interest rates further.
The expected increase in interest rates by the Bank of England demonstrates its desire to control inflation and boost its economy. However, the UK’s recent payroll data surge might not accurately represent the bigger picture. It’s essential to understand the full context of such data before making recommendations for interest rate hikes. The UK must be mindful of a potential risk of contraction if it hikes interest rates too soon.
In contrast, the Bank of Japan has made it clear that it does not plan to increase its interest rates in the short term. Instead, it aims to maintain the status quo and focus on economic growth. The Bank of Japan is exercising caution, making an effort not to stifle its economy’s fragile growth. Market participants should monitor emerging economies’ trends, such as Japan, to gain a full picture of the global market.
Overall, while investors remain optimistic about the global economy, the short-term uncertainty is prevalent, making it necessary to continue monitoring market trends.
Summary
US inflation fell below expectations, resulting in a 95% chance of the Federal Reserve avoiding interest rate hikes this week. The tech-heavy Nasdaq Composite and the US benchmark S&P 500 both rose. In Europe, France’s Cac 40, Germany’s Dax, and the regional Stoxx 600 index rose. Meanwhile, the UK’s payrolls surge could raise interest rate hike chances at the Bank of England. It is essential to understand the full context of this data before making any interest rate hike decisions. Finally, the Bank of Japan has no plans for short-term interest rate hikes, with a focus on maintaining its economic growth. Market participants must monitor trends in emerging economies to gain a better view of the global market.
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Wall Street stocks rose and Treasuries slipped in the open Tuesday after US inflation fell below-expected, reinforcing investor bets that the Federal Reserve won’t raise interest rates this week.
The benchmark S&P 500 edged up 0.3%, pushing itself higher into the bull market territory it entered last week, while the tech-heavy Nasdaq Composite added 0.2%.
The latest US Consumer Price Index report proved it stock inflation it slowed to 4% year-on-year in May, down from 4.9% the previous month, marking the lowest level since March 2021.
The figure was slightly below the consensus forecast of economists polled by Reuters and signaled that the Fed’s tightening campaign was starting to take effect, offering policymakers an opportunity to stall.
Investors thought there was a 95% chance the Fed would resist the upside interest rates when it met on Tuesday and Wednesday, up from 77% just before the data was released.
“The conventional wisdom is that inflation is on a lower path, the economy is slowing but not contracting, and the Fed will calm down and reassess in July,” said Mike Zigmont, head of research and trading at Harvest Volatility.
The yield on the two-year US Treasury, more sensitive to monetary policy expectations, fell by 0.02 percentage points to 4.58%, while the 10-year yield remained stable at 3.77%. Bond yields rise when prices fall.
The dollar, which weakens when investors expect lower rates, lost 0.4% against a basket of six similar currencies.
The moves come a day after Wall Street’s rally, with the benchmark S&P 500 up 0.9% to hit its highest point since last April. The Nasdaq Composite gained 1.5% to its highest level in 14 months.
In Europe. the regional Stoxx 600 and France’s Cac 40 gained 0.5%, while Germany’s Dax rose 0.6%.
Traders took heart after the ZEW Institute’s economic sentiment index for Germany fell to minus 8.5 in June, improving from minus 10.7 the previous month, and landing well above the consensus forecast minus 13.1.
Economists are still hopeful that the European Central Bank will raise its deposit rate by another quarter of a percentage point when policymakers meet on Thursday.
In the UK, robust payroll data pushed short-term gilt yields above the level reached during the turmoil following former Prime Minister Liz Truss’s “mini” budget last autumn, raising the likelihood that the Bank will England raises rates further.
“With all the signs suggesting that inflationary pressures are not easing and could very well rebuild against BoE expectations, the [labour market] the data will send shockwaves through Threadneedle Street,” said Nick Rees, forex market analyst at Monex Europe.
The two-year gilt yield climbed 0.23 percentage points to 4.86%, from a late-September peak of 4.64%.
Asian stocks rose on Tuesday, with Chinese stocks higher after the People’s Bank of China cut its seven-day reverse repurchase rate by 0.1 percentage point in a bid to boost short-term liquidity.
Hong Kong’s Hang Seng index rose 0.6% and China’s CSI 300 index rose 0.5%. Japan’s Topix gained 1.2% and South Korea’s Kospi gained 0.3%.
https://www.ft.com/content/b5be414a-80a5-4cb0-a598-6205ef583d1d
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