By Samuel Indyk
LONDON, Aug 10 (Reuters) – Wall Street futures were higher and the dollar lower on Thursday after US consumer price inflation rose only moderately last month, supporting views that the Federal Reserve is at the end of its cycle of interest rate hikes .
The consumer price index (CPI) rose 0.2% in July, the Labor Department said on Wednesday, raising the annual rate to 3.2% from 3% in the previous month. Economists polled by Reuters expected headline CPI to rise to 3.3%.
Annual consumer prices have fallen from a peak of 9.1% in June 2022. The Fed has an inflation target of 2%.
The core CPI, which excludes volatile food and energy prices, rose 4.7% last month after rising 4.8% in June.
Wall Street futures continued gains after the report was released as analysts bet the Federal Reserve may be done raising interest rates.
“Today’s US CPI report may have shown that headline prices rose for the first time in a year, but that’s to be expected given the rise in energy prices from their lows last year,” said Madison Faller, global investment strategist at JP Morgan Private Bank.
“The key is that core inflation is still falling – and there is ample room for that to continue. It looks like the Fed is still at or nearing the end of its tightening cycle.”
S&P Eminis were last up 0.5%, while European stocks also added to their gains.
This helped push MSCI’s main world stock index higher. Most recently, the increase was 0.2%.
The foreign exchange market also reacted to the news, with the dollar index, which measures the currency against six major currencies, extending losses to as low as 101.76, down around 0.6%.
US Treasury yields fell, with the 10-year yield at 3.9858%, down 2.5 basis points on the day.
The move spilled over into euro-zone bond markets, with the yield on 10-year German government bonds, the union’s benchmark, capping an earlier rise. Most recently it was 2.479%.
Money market traders, meanwhile, confirmed their bets that the Federal Reserve would leave interest rates unchanged for the rest of the year.
The story goes on
European stocks were earlier higher, fueled by a surge in luxury stocks after China lifted a ban on group travel in the United States and other key markets.
Among the winners was LVMH, Europe’s largest company by market cap, which rose 2.3%.
France’s CAC 40 – which has a heavy weighting in luxury stocks – fared better in Europe, rising 0.9%, while Germany’s DAX was up 0.5% and Britain’s FTSE 100 was little changed, weighed down by a number of Large-cap companies that didn’t pay dividends.
China is suffering
Asian stocks hovered near their two-week lows, still suffering from China’s slide into deflation and the announcement of a US ban on investments in sensitive technologies such as computer chips in China.
MSCI’s largest index of Asia-Pacific stocks outside of Japan was little changed and appeared to be posting losses for the second straight week. A technology sub-index fell to its lowest level in over two months.
Chinese data on Wednesday showed deflation at consumer price levels and further declines in factory prices in July, raising concerns about the faltering nature of the post-pandemic recovery.
China is the first G20 economy to report a year-on-year decline in consumer prices since Japan’s last negative CPI read in August 2021.
It underscores “the need for further fiscal support if Beijing is to avoid the risk of a deflationary trap,” said Rodrigo Catril, senior currency strategist at the National Australia Bank.
Oil prices fell slightly after hitting their highest levels since November 2022, helped by recent extensions of production cuts by Saudi Arabia and Russia.
US crude was last down 0.5% at $84.01 a barrel and Brent was at $87.30, down 0.3% on the day.
European gas prices also drew attention, after rising as much as 35% on Wednesday and hitting the highest level since June 15, following news of possible strikes at Australian liquefied natural gas (LNG) plants amid concerns about shifting cargoes to Asia triggered.
On Thursday, the Dutch first-month contract fell more than 6% to €39.14 per megawatt-hour, paring some of the previous day’s gain.
(Reporting by Samuel Indyk and Ankur Banerjee; Editing by Edwina Gibbs, Sam Holmes, Susan Fenton, Alexandra Hudson)
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