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Wall Street closed Wednesday trading with a big win for risk appetite which managed to beat anxiety prevailed markets because of the second batch of US inflation data a day after the release of producer price data highlighted the rise in inflation to concerning levels that came above expectations.
PPI indicators – released last Tuesday was loaded with a warning of that Fed may keep the same current levels of interest rates for a longer time.
However, US consumer price data – in contrast to the previous batch of inflation data – provided a push of positivity that prevailed after spotlighting levels that are consistent with market expectations and sometimes below them, which raised speculation that the Federal Reserve could deal with the interest file with greater confidence and comfort, and consider starting cutting rates soon.
The annual CPI increased by 3.4% in April versus the previous reading, recorded in the same month of last year, at 3.5%. The actual reading also came in line with expectations.
Core CPI – excluding food and energy prices – increased by 0.3% in April versus to the previous month’s reading of 0.4%, which also met expectations.
Annual reading of this index increased by 3.6% compared to the previous reading of 3.8%, which was in line with market expectations too.
That’s still too high for the central bank trying to drive overall inflation back down to 2%.The energy index rose 1.1% for a month and was up 2.6% on an annual basis. Food was flat and up 2.2%, respectively. Used and new vehicle prices, which had contributed to the early rise in inflation during the worst of the Covid pandemic, both declined, falling 1.4% and 0.4%, respectively.
Mixed Data
Producer price index in the United States rose 0.5% in April versus the previous reading of -0.1%, according to the monthly reading released by the US Bureau of Labor Statistics last Tuesday.
Core PPI, excluding food and energy prices, also recorded an annual increase of 0.5% versus the previous reading of 0.2%, which came above forecasts of 0.3%.
These readings could be a catalyst for the US dollar’s rally as markets crave signals from which to infer the future direction of interest.
However, this significant rise was failed to take the lead of price action in financial markets a day ago due to statements made by Jerome Powell, Chairman of the Board of Governors of the Federal Reserve, in which he reiterated most of his statements after the interest rate decision issued on the first of May, which showed that he is more inclined to staring cutting rates as lone as inflation is taking steady steps towards price stability.
Fed Chair Powell, speaking in an event Netherlands’ Foreign Bankers’ Association, in Amsterdam spoke to a number of topics in the hour long Q&A session.
Much was a rehash of the Fed presser last week of course. The USD is lower. Yields are trading near lows. Stocks are higher with the Nasdaq index leading the way.
Powell expects to hold policy rate where it is rather than reduce it. He does not expect the need to raise rates.
He did comment that the PPI data from earlier today was mixed. He characterized the housing inflation as puzzling. He does expect that inflation will come down toward the 2% target as policy remains restrictive. He does admit that the could take longer than expected to get inflation down. He said the economy was performing well and that consumer spending and business investment was strong. Unemployment and labor market remains very strong, but the sees signs of gradual cooling.
How did markets respond to inflation data?
US Dollar tumbled on Wednesday after inflation data reflected levels under market expectations.
US stocks ended Wednesday trading session with gains after inflation data highlighted moderate rise of CPI readings.
US Treasury yields have been falling since the start of daily trading on Thursday, weighed down by inflation readings that highlighted positive numbers that could push the Fed in the direction of a rate cut.
