Stocks hit record highs, yields fall; US CPI raises rate cut hopes

BY Reuters | ECONOMIC | 05/14/24 10:07 PM EDT

By Caroline Valetkevitch

NEW YORK (Reuters) -Global stock markets rose to record highs while U.S. Treasury yields and the U.S. dollar fell on Wednesday as data showed U.S. consumer prices rose less than expected in April, suggesting inflation has resumed a downward trend in the second quarter.

The CPI report raised expectations that the Federal Reserve will cut interest rates two times this year.

The Dow and S&P 500 registered record closing highs for the first time since March 28 and the Nasdaq posted a record closing high for the second session in a row, while the MSCI world stock index was also set for a second straight record high close.

Europe's main share index notched a record high as well.

The U.S. Bureau of Labor Statistics said its consumer price index rose by 0.3% in April, below expectations for an increase of 0.4%, while on an annual basis, CPI was up 3.4%, in line with forecasts and below the previous month's 3.5% rate.

Investors do not anticipate any rate hikes in 2024, but they have had to dial back expectations for rate cuts, given the persistence of inflation.

CPI "was a good report," said Oliver Pursche, senior vice president and adviser at Wealthspire Advisors in Westport, Connecticut.

"As we've been talking about, progress is being made on the inflation front, but it is uneven. So I don't think this changes the Fed's trajectory or plan, but it should give investors and consumers confidence that we're moving in the right direction," Pursche added.

Fed funds futures traders are now pricing in 52 basis points of cuts this year, up from 45 basis points on Tuesday, with the first 25 basis-point cut likely in September.

On Tuesday, data showed U.S. producer prices increased more than expected in April.

Minneapolis Fed President Neel Kashkari on Wednesday reiterated his view that he is unsure how restrictive monetary policy is right now, and that borrowing costs should stay where they are as U.S. central bankers take stock of inflation.

The Dow Jones Industrial Average rose 349.89 points, or 0.88%, to 39,908.00, the S&P 500 gained 61.47 points, or 1.17%, to 5,308.15 and the Nasdaq Composite gained 231.21 points, or 1.40%, to 16,742.39.

MSCI's gauge of stocks across the globe was up 7.89 points, or 1.00%, to 793.77 and hit an intraday record high. The STOXX 600 index rose 0.59%.

U.S. Treasury yields fell to more than five-week lows after the CPI report.

Benchmark 10-year yields were last down 9 basis points at 4.356% and reached as low as 4.340%, the lowest level since April 5.

The dollar fell against major currencies after the CPI report.

The dollar index, which measures the greenback against a basket of major currencies including the yen and the euro, fell to a fresh one-month low at 104.30, and was last 0.66% lower at 104.35.

One of the dollar's biggest declines was against the yen as it weakened 0.96% to 154.94.

The drop would likely keep at bay currency intervention by the Bank of Japan and other authorities, said Marvin Loh, senior global macro strategist at State Street in Boston.

In cryptocurrencies, bitcoin gained 7.17% to $66,045.00. Ethereum rose 4.51% to $3,021.3.

U.S. crude gained 61 cents to settle at $78.63 a barrel and Brent rose 37 cents to settle at $82.75 per barrel. Spot gold climbed over 1% to $2,386.63 per ounce.

(Reporting by Caroline Valetkevitch in New YorkAdditional reporting by Herbert Lash in New York and Amanda Cooper in LondonEditing by Jonathan Oatis and Matthew Lewis)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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