US stocks and bonds jump after inflation fell more than forecast

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Wall Street stocks and US government debt rose on Wednesday, while the dollar declined after June inflation fell more than expected, easing pressure on the Federal Reserve to raise interest rates.

Wall Street’s benchmark S&P 500 stock index rose 1 per cent to its highest since April 2022, while the tech-heavy Nasdaq Composite gained 1.4 per cent.

The yield on the two-year Treasury note, which tracks interest rate expectations, fell 0.15 percentage points to 4.74 percent, a two-week low. Yields move inversely to prices.

Meanwhile, an index tracking the dollar’s strength against six peers fell 1 percent to its lowest in 15 months as traders saw little prospect of a rate hike later this year.

The moves came after US consumer prices rose at an annual rate of 3 percent last month, down from 4 percent in May, data from the Bureau of Labor Statistics showed. This is the smallest increase in 12 months since March 2021. Economists polled by Reuters had forecast a decline of 3.1 percent.

The core CPI, which removes volatile food and energy prices, slowed to an annual rate of 4.8 percent in June, well below forecasts, from 5.3 percent.

“There are many ways to torture the data – you can measure ‘core’ inflation, ‘core services excluding housing’ or ‘core ex-housing and used cars’ or some other measure. But everything is pointing to a deceleration in the pace of inflation,” said Sebastian Vismara, global macroeconomist and strategist at BNY Mellon Investment Management.

“Any way you cut it, this release is positive for the Fed and the markets,” Wismara said.

Neil Birrell, chief investment officer at Premier Mitten, said: “The Fed is looking increasingly likely to have accomplished what many thought impossible: growth is strong and inflation is falling.”

Markets still expect the Fed to raise rates by 0.25 percentage points at its central bank meeting later this month after halting hikes for the first time in more than a year in June. Markets turned bleak for further upside after Wednesday’s inflation data.

Investors are divided on whether the US can avoid a recession. “Think about the economy and markets coming to a crossroads, with one path going towards a soft landing and corresponding positive market effects, and the other going the opposite way ending in a recession,” said Jason Draho, head . of asset allocation for the Americas at UBS Global Wealth Management.

Across the Atlantic, Europe’s region-wide Stoxx 600 rose 1.5 percent, while France’s CAC 40 added 1.7 percent. London’s FTSE 100 rose 1.8 percent.

There was a mixed trend in the Asian markets. China’s CSI 300 and Japan’s Topix both fell 0.7 percent, but Hong Kong’s Hang Seng index rose 1.1 percent and Korea’s Kospi gained 0.5 percent.

In commodity markets, Brent crude oil rose above $80 a barrel for the first time since May as expectations of a sharp production cut by OPEC+ and a widening supply gap in the second half of this year lifted prices from their recent range. Gave.

Additional reporting by Nicholas Magow in New York