Cooler inflation keeps US stocks up, dollar and yields down

Cooler inflation keeps US stocks up, dollar and yields down

US stocks rose again and global stock markets hit new highs for 2023 on Thursday, while the dollar and Treasury yields continued to slide, as hopes that slowing US inflation will persuade the Federal Reserve to hit the pause button on interest rate hikes after this month.

Wall Street's main stock indexes built on Wednesday's sharp gains after data showed that consumer prices rose modestly in June, registering the smallest annual increase in more than two years. Investors also digested fresh data on Thursday showing that US producer prices barely rose in June, an unexpected decline in US jobless claims, and a drop in Chinese exports.

The Dow Jones Industrial Average rose 0.31%, to 34,455.61, the S&P 500 gained 0.57%, to 4,497.56 and the Nasdaq Composite added 0.96%, to 14,052.38.

Bets that the Fed could soon end its monetary tightening campaign also sent the dollar to its lowest since April 2022, and pushed the yield on two-year US Treasury notes to a nearly four-week low.

Interest rate futures showed markets have fully priced in another rate hike from the Federal Open Market Committee (FOMC) later this month, but expectations of any further increases have faded.

The softer dollar helped gold prices advance to near one-month highs, while oil prices hovered above $80 a barrel.

The MSCI All Country stock index was up 0.87%, hitting a new high for the year. It is up 14.7% so far in 2023, though still not wiping out all of the near 20% loss in 2022.

Stocks and bonds in Asia rallied in response to the US inflation news, while in Europe, the STOXX index added 0.7% to Wednesday's gains, bringing its advance for the year to around 8.7%.

Market strategists at Citigroup said in a note on Thursday that slower job growth and softer-than-expected core consumer prices "finally lend some support to the Fed’s preferred narrative that supply and demand are coming into balance, allowing inflation to cool."

"We’ve been expecting a subsequent hike in September, but recent data raise the probability it’s delayed to November," they added.

DISMAL CHINA DATA

Investors in Asia shook off dismal China trade data, which showed both exports and imports contracted at a worse-than-expected pace last month, betting that the latest bad news will trigger more stimulus measures.

MSCI's broadest index of Asia-Pacific shares outside Japan surged about 2%, bolstered by a 2.6% jump in Hong Kong's Hang Seng index and a 1.6% gain in Australia's resources-heavy shares. Japan's Nikkei rose 1.5%.

The International Monetary Fund said on Thursday that first quarter global growth slightly outpaced projections in its April forecasts, but data since then has shown a mixed picture, with "pockets of resilience" alongside signs of slowing momentum.

BOND RELIEF

Bonds heaved a sigh of relief after a rout last week sent global yields sharply higher. The 10-year Treasury yield eased to 3.806%, down 5.7 basis points, having dived from a seven-month top of 4.0940% on Friday.

Rate-sensitive two-year yields slipped to 4.647%, down 9.5 basis points.

Oil prices traded near the highest in two months on a soft U.S. dollar. Brent crude futures was little changed at $80.16 per barrel and U.S. West Texas Intermediate crude futures were also flat at $75.70.

Gold prices were up 0.1% at $1,958 per ounce.

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(Reporting by Lawrence Delevingne in Boston and Huw Jones in London; Additional reporting by Stella Qiu in Sydney; Editing by Chizu Nomiyama)