Shares, dollar edge up after moderate US CPI data

Global shares and the dollar edged higher on Thursday after U.S. consumer price inflation moderated in July and boosted hopes the Federal Reserve is near the end of its rate-hiking cycle, but investors remained wary over data due to arrive before policymakers meet next. The consumer price index (CPI) gained 0.2 per cent last month, the Labor Department said, lifting the annualized rate less than expected to 3.2 per cent from 3 per cent in June. Economists polled by Reuters expected headline CPI to rise a bit faster at 3.3 per cent.

The pace of core CPI, which strips out volatile food and energy prices, slowed to 4.7 per cent in July from 4.8 per cent the prior month. "This is a Fed friendly report because some of the pressures that we were previously seeing, particularly in travel-related components and new and used car prices, have shown a few months now of deceleration or even decline," said Russell Price, chief economist at Ameriprise Financial in Troy, Michigan. "The shelter component, which is such a large weighting in the index, both headline and core, is also continuing to decelerate at a slow pace," Price said.

Consumer prices have decelerated from a peak of 9.1 per cent in June 2022 and traders have cut bets that the Fed will raise rates further as inflation slows closer to its 2 per cent annual target. But investors remained cautious as another CPI report and jobs data are due before Fed policymakers' next meeting in late September. Signs of sticky inflation also raised concerns. "For the Fed, they still have a lot more data to get through," said Brad Bechtel, global head of FX at Jefferies. "So, not enough in this one report to probably move the needle one way or the other."

The main Wall Street stock indexes initially jumped more than 1 per cent, as did the major German, French, Italian and Spanish indexes. Treasury yields eased, taking pressure off gold prices, and the dollar traded either side of break-even. MSCI's gauge of global stock performance (.MIWD00000PUS) closed up 0.26 per cent, helped by stronger gains in Europe where the pan-regional STOXX 600 index (.STOXX) rose 0.79 per cent. On Wall Street, the Dow Jones Industrial Average (.DJI) rose 0.15 per cent, the S&P 500 (.SPX) gained 0.03 per cent and the Nasdaq Composite (.IXIC) added 0.12 per cent. Fed doves calling for a hiking pause appear to have the upper hand, said Brad Conger, deputy chief investment officer at Hirtle Callaghan & Co in Conshohocken, Pennsylvania, "but we're still in wait and see mode" because "clearly there are elements that are going to keep inflation possibly sticky."

The dollar index , a measure of the U.S. currency against six peers, fell to a low of 101.76 and was last up 0.14 per cent at 102.62. The euro rose 0.07 per cent to $1.0981. "There's really nothing that's going to weaken the dollar substantially" in the near future, said Bechtel. "If anything, the dollar is going to remain supported, mostly because the U.S. economy is doing well relative to its peers."

Treasury and European bond yields also wobbled, with the U.S. 10-year benchmark last up 9.1 basis points at 4.098 per cent, above the 4.0 per cent floor it has mostly held since Aug. 1. Germany's 10-year yield , the euro zone's benchmark, trimmed earlier gains and rose 4.3 basis points at 2.546 per cent.

CHINA WOES

Asian stocks overnight remained near a two-week low, still reeling from China's slip into deflation and an announcement of a U.S. ban on investments in China in sensitive technologies like computer chips. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) slid 0.6 per cent, briefly touching an almost one-month low. A technology sub-index (.MIAPJIT00NUS) fell to its lowest in more than two months.

Chinese data on Wednesday showed deflation at the consumer-price level and further declines for factory-gate prices in July, exacerbating concerns about the sputtering 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 headline CPI reading in August 2021.

Oil prices fell, with Brent crude holding close to January highs, as speculation about another Fed rate hike faded following the inflation data and OPEC remained positive on the oil demand outlook. U.S. crude futures fell $1.58 to settle at $82.82 a barrel, while Brent settled down $1.15 to $86.40. Gold prices ticked up after the U.S. inflation data on speculation the Fed is at the end of its rate hike cycle. U.S. gold futures settled 0.1 per cent lower at $1,948.90 an ounce.