Wall Street futures shot higher and Treasuries rallied on Wednesday after closely watched US inflation data fell slightly more than expected, easing pressure on the Federal Reserve to keep raising interest rates.
Contracts tracking Wall Street’s benchmark S&P 500 rose 0.9 per cent while those tracking the tech-heavy Nasdaq 100 added 1.1 per cent ahead of the New York open.
The moves in equity markets came as traders reacted to the latest US consumer price index report from the Bureau of Labor Statistics.
Data on Wednesday showed headline annual inflation slowing from 6 per cent in February to 5 per cent in March, with economists polled by Bloomberg expecting a reading of 5.1 per cent.
Core inflation, preferred by the Fed because it strips out volatile food and energy prices, rose from 5.5 per cent in February to 5.6 per cent in March, in line with economists’ expectations.
US government debt rallied on the back of the inflation data, with yields on two-year Treasuries down 0.14 percentage points to 3.91 per cent and 10-year yields falling 0.06 percentage points to 3.37 per cent. A measure of the dollar’s strength against a basket of six major currencies declined 0.6 per cent.
Unlike the bond market, “which has worried about economic growth for a while”, the equity market seems to be “only worried about aggressive Fed hiking, which is already off the table”, said Mike Zigmont, head of trading and research at Harvest Volatility Management. “The Fed has one [quarter percentage point] hike left, if that.”
Swaps markets are now pricing in a roughly 67 per cent chance of a 0.25 point rate rise in May, down from a 75 per cent chance before the latest inflation figures.
Minutes from the Federal Open Market Committee’s March meeting, released on Wednesday afternoon, show that policymakers expected stress at several regional banks last month to lead to “tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation”.
Europe’s region-wide Stoxx 600 rose 0.2 per cent, as did Germany’s Dax, while London’s FTSE 100 rose 0.6 per cent.
Asian equities were mixed, with Hong Kong’s Hang Seng index down 0.8 per cent and China’s CSI 300 flat. Japan’s Topix and South Korea’s Kospi added 0.8 per cent and 0.1 per cent respectively.
