Stocks rise, yields edge lower after US inflation data

NEW YORK/MILAN, May 11 (Reuters) – The S&P 500 and Dow Jones gained ground on Wednesday and the dollar index fell after data showed U.S. inflation slowed year-on-year last month, giving investors some hope that the price surges will peak.

US equity futures initially lost ground after underlying inflation, excluding items such as oil prices, came in higher than expected. But ultimately, investors seemed encouraged by the year-on-year change in consumer price growth to 8.3% in April from 8.5% in March, although it was above the 8.1% estimate of analysts. Read more

Likewise, while bond yields soared immediately after the report in what Jim Paulsen, chief investment strategist at The Leuthold Group in Minneapolis, called an emotional initial reaction, they lost ground as investors digested the news.

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“At the end of the day, we can be all excited about whether it’s a little higher or a little lower, but clearly the year-over-year inflation rate has come down and seems to have peaked in March. It seems to have turned the corner,” he said.

“The other good thing here is that bond yields had a knee-jerk reaction but have calmed down. Whatever you think of the inflation report today, it looks like bond yields were already high enough and equities were already low enough. That tells you they had both priced for hot inflation.”

The Dow Jones Industrial Average (.DJI) rose 213.25 points, or 0.66%, to 32,373.99, the S&P 500 (.SPX) gained 18.18 points, or 0.45%, to 4,019.23 and the Nasdaq Composite (.IXIC) fell 61.52 points, or 0.52%, to 11,676.15.

The Nasdaq fell as interest rate-sensitive growth sectors technology (.SPLRCT) and consumer discretionary (.SPLRCD) reacted negatively to inflation data. Paolo Zanghieri, senior economist at Generali Investments, said this confirmed that returning inflation to more tolerable levels would take time.

“Overall, today’s data adds to the case for the anticipated high concentration requested by (Fed Chairman Jerome) Powell in the last meeting, who also suggested the possibility of two hikes additional 50 basis points in June and July,” Zanghieri said.

“However, this will keep worries about the possibility of a recession high, and eventually weakening growth could lead the Fed to moderate its tightening after the summer.”

The pan-European STOXX 600 index (.STOXX) rose 1.54% and the MSCI gauge of stocks across the world (.MIWD00000PUS) gained 0.61%. On Tuesday, the global index fell to its lowest level since December 2020 on fears that Fed tightening could significantly slow the global economy.

While the dollar index gained ground initially after the inflation news, it was last down 0.25% as the euro rose 0.19% to $1.0547. The Japanese yen strengthened 0.17% against the greenback to 130.22 to the dollar, while the pound last traded at $1.2329, up 0.06% on the day. Read more

After falling to their lows nearly a week earlier on Wednesday, the initial reaction of benchmark 10-year Treasury yields to inflation data was to retrace towards the three-year high of 3.203% hit on Monday.

Yields have since lost ground, with 10-year Benchmark notes lasting 5/32 to hit 2.9754% from 2.993% on Tuesday night. The 30-year bond last rose 21/32 to 3.0905% from 3.129%.

But the 2-year note last fell 5/32 in price to fetch 2.6967% from 2.623%.

Last week the Fed raised interest rates by 50 basis points and Chairman Jerome Powell said two more such hikes were likely in upcoming policy meetings. There has also been market speculation that the US central bank will have to move 75 basis points in a meeting.

Morgan Stanley expects global economic growth in 2022 to be less than half that of last year at 2.9%, down from a previous estimate of 3.2%. read more The US bank also cut its end-of-year target for the S&P 500 by 11% to 3,900 points, while raising its 10-year US return forecast by 55 basis points to 3.15%.

Oil prices jumped on Wednesday after plunging nearly 10% in the past two sessions, buoyed by supply issues as Russian gas flows to Europe plummeted and the European Union slumped. is trying to gain support for a Russian oil embargo.

U.S. crude recently rose 4.92% to $104.67 a barrel and Brent to $106.91, up 4.34% on the day.

Spot gold added 0.7% to $1,851.30 an ounce.

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Reporting by Sinéad Carew in New York, Danilo Masoni in Milan, Sujata Rao in London and Alun John in Hong Kong, Editing by William Maclean, Tomasz Janowski and Angus MacSwan

Our standards: The Thomson Reuters Trust Principles.

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