US stocks climb after inflation eases

Wall Street stocks gained ground 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.

The benchmark S&P 500 rose 0.6 per cent in early trade, with technology and basic material stocks among the best performers. The tech-heavy Nasdaq Composite added 0.7 per cent shortly after 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 following the inflation data, with yields on two-year Treasuries down 0.1 percentage points to 3.95 per cent and 10-year yields falling 0.05 percentage points to 3.38 per cent. A measure of the dollar’s strength against a basket of six major currencies declined 0.6 per cent.

“The message from today is that the Fed is winning its fight against inflation,” said Hugh Gimber, global market strategist at JPMorgan Asset Management. “The case for [policymakers] to pause is strengthening, though I still think they may be tempted by one more hike.”

“The bulk of the strength in inflation is in the most backward-looking parts of the inflation basket,” Gimber added. “This primarily is a shelter story and a core services ex-shelter story, and we know that both of those are looking to turn lower over the coming months.”

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”.

In Europe, the region-wide Stoxx 600 rose 0.4 per cent, while Germany’s Dax and London’s FTSE 100 both added 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.