[1/3] Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, US, May 4, 2023. REUTERS/Brendan McDiarmid
SINGAPORE (Reuters) – A gauge of global stock markets and bond yields were volatile on Wednesday after data showed U.S. consumer prices rose in April at a slower-than-expected pace, suggesting the Federal Reserve was succeeding in taming soaring inflation.
The Labor Department said the Consumer Price Index rose 0.4% after gaining 0.1% in March, while the Consumer Price Index rose 4.9% in the 12 months through April, after advancing 5.0% year-on-year in March.
Futures showed the Fed likely to raise interest rates again in June, falling to 1.5% from 21.9% just before the data release, according to CME Group’s FedWatch tool. The possibility of the Fed cutting interest rates later this year has also increased.
But the economy remains strong and it will take time to bring inflation down to the Fed’s 2% target, said Johann Grahn, chief ETF market strategist at Allianz Investment Management in Minneapolis.
“On the back of another strong March jobs report, the unemployment rate at 3.4%, 9.5 million jobs and still hot wage growth, the Fed is likely to remain focused on its deflationary agenda for the coming months,” Grahn said.
“The Fed does not aim to get rate policy right at the right time, it aims to get it right over time.”
Shelter, a large component of the consumer price index, came in slightly weaker, said Priya Misra, head of global price strategy at TD Securities in New York, which gave markets relief as some people were looking for a stronger number.
“There’s a big caveat,” she said, “it came out weaker because of the hotels, not because of the rents.” “The market could be cheering up here because inflation is on the way down. It is, but we think it’s going to be a little sticky on the way down.”
The two-year Treasury yield, which typically moves according to interest rate expectations, fell from 4.05% before the CPI news and fell to 3.904%. The benchmark 10-year note fell 8.3 basis points, to 3.439%.
The dollar fell on expectations that the Federal Reserve will stop raising interest rates to curb rising inflation, while crude oil futures gave up their initial gains after the release of the data due to fears of rising US inventories that showed weak demand.
The dollar index fell 0.14% and stock markets initially rallied as consumer price index data indicated that the most frequent Fed rate hikes in four decades were producing results.
The MSCI Worldwide US Stock Index (.MIWD00000PUS) rose 0.09%, while the pan-European STOXX 600 Index (.STOXX) closed down 0.38%.
Stocks on Wall Street were mixed after an early rally. The Dow Jones Industrial Average (.DJI) fell 0.39%, the S&P 500 (.SPX) rose 0.23% and the Nasdaq Composite (.IXIC) rose 0.86%.
Headwinds still loomed for the world’s largest economy, as detailed talks on raising the US government’s $31.4 trillion debt ceiling began on Wednesday. The US Treasury warned that a destabilizing default could come as soon as June 1.
China crisis
The foreign exchange markets were doing well as markets were weighing the rhetoric of policy makers against the conviction of traders that US interest rates should come down.
European Central Bank (ECB) Governing Council member Mario Centeno said on Wednesday that the ECB’s main interest rate is nearing its peak, but that further adjustments are still necessary, adding that he expects interest rates to start easing sometime next year.
The euro rose 0.14 percent to $1.0975.
China’s weak import figures for April sent Chinese and Hong Kong stocks lower for the second straight session, as investors fear the market’s rebound from reopening the economy is fading into an uneven rebound.
Hong Kong’s Hang Seng fell 1.3% and the yuan fell to a two-week low.
A crackdown on corporate due diligence appears to be rattling the sector and unnerving investors. Reuters reports that CICC Capital, a unit of leading Chinese investment bank China International Capital Corp (3908.HK), has stopped using advisory firm Capvision.
US crude futures fell 1.6 percent to settle at $72.56 a barrel, and Brent crude closed down at $76.41 a barrel.
Gold prices fell as CPI data was seen as mixed and led to profit-taking by some investors.
US gold futures settled down 0.3%, at $2,037.10 an ounce.
Editing by Simon Cameron Moore
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