Stocks rise, bonds firm on reassuring US inflation data

Reuters

2 days ago

LONDON, Aug 12 (Reuters) - Stocks rallied worldwide on Tuesday as U.S. consumer prices data allayed concerns that tariffs were already starting to raise inflation, hours after Washington and Beijing agreed a trade war truce that staved off a surge in levies on Chinese imports.
Futures trading in New York signalled the S&P 500 share index and the tech-heavy Nasdaq 100, which are both near record highs thanks to rate cut bets and strong tech earnings, would rise about 0.7% each when cash markets opened , .
In the 12 months through July, the U.S. consumer price index rose 2.7%, the Labor Department's Bureau of Labor Statistics said, which was slightly below the 2.8% rate that economists polled by Reuters had forecast.
U.S. Treasuries rallied moderately in the minutes following the data, with benchmark yields about 4 basis points (bps) lower at 4.269% and those on two-year notes, which track interest rate expectations, down 2 bps at 3.73%.
Investors had been on tenterhooks about this batch of inflation data because it had followed a surprisingly weak jobs report on August 1, and had the potential to make concerns about U.S. stagflation a dominant global narrative.
Even just fears about that rate low-growth and higher-prices scenario would cause "havoc" for bonds and equities, Foresight Group fund manager Mayank Markanday said, by making longer-dated Treasuries that set financing costs worldwide much more volatile.
He also expected this scenario to play out as tariff price rises escalated.
"We're going to see more of the data validating that thesis," Markanday said.
Markets on Tuesday traded on short-term relief, however, as the softer than expected prices data firmed up bets for U.S. rate cuts.
After the latest CPI print landed, money market pricing showed traders anticipated about 57 bps of Fed cuts by the end of this year.
The U.S. dollar slipped 0.1% against the euro to $1.162 and pared gains against Japan's yen trade at 148.29 yen
Future tracking the Russell 2000 share index , which is dominated by economically-sensitive small and medium-sized U.S. companies and had been weighed down by fears of the Fed holding back from rate cuts, rose 1.4%.
The reassuring CPI print also relieved anxiety about rising prices exacerbating pressure from U.S. President Donald Trump for Fed chair Jay Powell to cut rates.
Trump has nominated White House advisor Stephen Miran to temporarily fill a vacant board seat at the U.S. central bank, stirring up speculation about presidential interference in monetary policy.
Asian equities had rallied earlier after Trump signed an executive order overnight pausing triple-digit levies on Chinese imports for another 90 days.
That propelled Tokyo's exporter-heavy Nikkei (.N225), opens new tab to an all-time peak, while European stocks (.STOXX), opens new tab nudged higher, as Trump's latest tariff climbdown allayed fears about China flooding non-U.S. markets with cheap goods to keep its factories humming.
The U.S. and China have engaged in a tit-for-tat tariff duel throughout the year, culminating in trade talks in Geneva, London and Stockholm since May that focused on bringing tariffs down from triple-digit levels.
Chinese exports jumped 7.2% year-on-year in July, beating the consensus forecast of economists polled by Reuters, but the nation's factory gate prices dropped by the most in two years in a further sign of manufacturers struggling to sell goods at home.
Elsewhere in markets, the pound rose 0.4% against the dollar as traders anticipated the Bank of England lagging behind other non-U.S. central banks in implementing rate cuts.
Official UK labour data showed that British earnings growth was still running at 5%, two percentage points above the level economists view as consistent with the Bank of England's inflation goal and despite an economic slowdown.
The BoE cut benchmark borrowing costs by a quarter point to 4% last week after a tightly-balanced vote between members of its monetary policy committee, who also broadly agreed that the risks of an upward wages-and-prices spiral remained present.
Ten-year gilt yields rose by 4 bps to 4.613%.
In commodities, spot gold prices edged up to $3,353 per ounce after dropping nearly 1.6% on Monday in response to Trump announcing there would be no tariffs on imported gold bars.
Brent crude oil traded 0.6% lower at $66.21 a barrel ahead of the August 15 meeting between Trump and Russian President Vladimir Putin, aimed at negotiating an end to the war in Ukraine.
The talks follow increased U.S. pressure on Russia, raising the prospect of penalties on Moscow if a peace deal is not reached.