Shares and the value of the dollar increase slightly following moderate US CPI data

Traders on the floor of the New York Stock Exchange saw a shift in market trends as U.S. inflation cooled and consumer prices rose moderately. Despite an initial spike in early gains, Wall Street eventually gave up most of its gains, while European stocks experienced a rally. The dollar also recovered from its earlier losses related to inflation. While these developments have boosted hopes that the Federal Reserve is nearing the end of its rate-hiking cycle, investors are still cautious due to upcoming data that will be released before policymakers’ next meeting.

In July, the consumer price index (CPI) increased by 0.2%, according to the Labor Department. This pushed the annualized rate to 3.2%, which is slightly lower than economists’ expectations of 3.3%. The core CPI, which excludes volatile food and energy prices, also showed a slowing pace, dropping to 4.7% in July from 4.8% in the previous month.

Russell Price, chief economist at Ameriprise Financial, stated that this report is favorable for the Fed because it indicates a deceleration or decline in some of the previously seen inflationary pressures, especially in travel-related components and new and used car prices. The shelter component, which holds significant weight in the index, is also continuing to slow down gradually.

Despite this positive report, investors remain cautious due to the upcoming CPI report and jobs data that will be released before the Fed’s September meeting. Concerns about sticky inflation also persist. Brad Bechtel, global head of FX at Jefferies, commented that there is still a need for more data before any significant decision can be made.

Initially, Wall Street stocks and major European indexes experienced a substantial surge, but that excitement was short-lived. Treasury yields eased, which alleviated pressure on gold prices, and the dollar remained relatively stable. MSCI’s global stock performance index closed slightly higher, mainly driven by stronger gains in Europe.

According to Brad Conger, deputy chief investment officer at Hirtle Callaghan & Co, Federal Reserve doves who advocate for a pause in rate hikes seem to have the upper hand. However, investors are still in a “wait and see” mode as there are elements that could potentially lead to persistent inflation.

The dollar index, which measures the U.S. currency against six peers, reached a low point but ultimately rebounded slightly. Bechtel mentioned that the dollar is expected to remain supported because the U.S. economy is performing relatively well compared to other countries.

Both U.S. and European bond yields experienced fluctuations, with the U.S. 10-year benchmark rising above the 4.0% floor it has held since August 1. Similarly, Germany’s 10-year yield rose despite some earlier gains.

Asian stocks, particularly in China, continued to be affected by the country’s slip into deflation and the U.S. ban on investments in sensitive technologies. China reported deflation in consumer prices and further declines in factory-gate prices, which raised concerns about the post-pandemic recovery. This is the first time a G20 economy has reported a year-on-year decline in consumer prices since Japan experienced negative CPI in August 2021.

Oil prices fell as speculation about another Fed rate hike faded and OPEC remained positive about future oil demand. Gold prices, on the other hand, ticked up after the U.S. inflation data was released, reflecting speculation that the Fed is reaching the end of its rate hike cycle.

In conclusion, while the latest inflation data has provided some relief and optimism in the market, investors remain cautious due to the upcoming data releases and concerns about sticky inflation. The overall sentiment is still one of uncertainty and a “wait and see” approach.

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