US stocks rose strongly in trading on Wednesday, as fueled by… inflation data Less-than-expected bets that the Fed could focus on a lower pace of interest rate increases, a view that market watchers have cautioned against, saying officials may still be far from the 2% inflation target.
Traders rushed to risk on Wednesday, with the S&P 500 index hitting a three-month high. The rally in technology stocks also pushed the Nasdaq 100 index to gain 20% above its June low, breaking out of a bear market and into a bull market by popular definition. The index is still 19% lower than last November’s peak. The volatility index also fell to its lowest level since April.
The dollar has fallen the most since the beginning of the epidemic, as well as the two-year Treasury yields fell by about five basis points in late trading, after declining by about 20 basis points immediately after the data, while West Texas Intermediate crude exceeded $ 91 a barrel.
For a market plagued by fears as the Fed struggles to tame the inflation beast, July CPI breathed a sigh of relief as both core and aggregate indicators came in below expectations. Swaps now indicate that a 50bp move is more likely in September, limiting a repeat of the 75bp increases that officials chose to implement in their last two meetings.
“This is generally good news for risky assets,” wrote Florian Ilbo, head of macroeconomics at Lombard Odier Asset Management, adding that “low price growth does not mean the end of inflation, and of course it does not mean the end of central tightening. Inflation remains a condition that requires the attention of the Reserve Bank.” The Federal Reserve and, more importantly, its procedures in dealing with it.”
One of the upside risks in the stock market right now is that it could cause financial conditions to relax that could conflict with the Fed’s goals. It is also worth looking back to the early 1980s, when then-Fed Chairman Paul Volcker eased policy as inflation peaked and the economy entered a recession. But the moderation in price pressures proved much slower than officials wanted and they had to tighten again months later.
complex puzzle
In fact, the CPI surprise is just one snapshot of the complex puzzle that officials are playing right now – and perhaps for the next several months – as the central bank is still miles away from reaching its inflation target. Food prices in the US have risen to the most since 1979 in July, driving up the cost of living painfully even as lower gasoline costs have provided some relief to consumers.
Two Fed officials responded to weak inflation data by saying It does not change the central bank’s path toward higher rates this year and next.
Referring to market pricing of the policy path, Minneapolis Fed President Neil Kashkari said it was not realistic to conclude that the central bank would start cutting interest rates in early 2023. His Chicago counterpart Charles Evans said officials would likely continue to walk Next year to bring down “unacceptably high” inflation.
“It is likely that easing financial conditions will upset the Fed, and we should not be surprised to see Fed speakers continue to try to talk to the market and risky asset traders,” said Christian Hoffmann, portfolio manager at Thornburg Investment Management.
Stock Closes
- The S&P 500 is up 2.1% as of 4 p.m. New York time
- The Nasdaq 100 Index is up 2.8%.
- The Dow Jones Industrial Average rose 1.6 percent.
- The MSCI World Index rose 1.8%.
coins
- Bloomberg spot dollar index down 1%.
- The euro rose 0.9% to $1.0302
- The British pound rose 1.2% to $ 1.2220
- The Japanese yen rose 1.6 percent to 132.93 per dollar
bond
- The yield on the 10-year Treasury bond rose one basis point to 2.79%.
- The German 10-year bond yield fell three basis points to 0.89%.
- The yield on British 10-year bonds fell two basis points to 1.95%.
goods
- West Texas Intermediate crude rose 1.1% to $91.49 a barrel
- Gold futures fell 0.4% to $1,805.90 an ounce
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