US consumer prices data cheers Wall Street

Inspired by the new inflation data that shows a slowdown in the seemingly relentless rise of US consumer prices in the month of June, Wall Street on Wednesday roared higher.

As per the Labour Department, the Consumer Price Index (CPI) gained just 0.2% last month, lifted by rises in gasoline prices as well as rents, which offset a decrease in the price of used motor vehicles.

CPI advanced 3.0% in the 12 months through June, down from 4.0% in May and the smallest year-on-year increase since March 2021, Reuters reported. 

The Dow Jones Industrial Average rose 0.78% to 34,527.78, the S&P 500 gained 0.85% to 4,477.19, and the Nasdaq Composite added 1.14% to 13,917.50.

US stock gains helped push up MSCI's main 47-country world index, which is now 13.66% higher for the year, bouncing back from rate hike-induced lows in late 2022.

"The CPI report has come in lighter than expected... and the markets are reacting in a positive fashion," said Art Hogan, chief market strategist at B Riley Wealth in New York, echoing positive analyst sentiment.

"Its policy implications are clear that the Fed is at or near the end of this rate hike cycle," Hogan added.

Dollar, yields retreat   

The currency market was moving on the CPI news too. The dollar was down 0.75% on Wednesday at $100.97, near its lowest point in a year.

The yen had clambered back near 140, up around 1%, and sterling hit a 15-month high, up 0.5% on the day, as the Bank of England said the UK was coping with higher interest rates.

US Treasury yields also dropped, with the 10-year Treasury yield now at 3.899%, down 8 basis points. The two-year, which typically moves in step with interest rate expectations, was down 14.3 basis points at 4.753%.

Wednesday's moves saw euro zone bond yields decline, with Germany's 10-year yield dipping to 2.58%, having hit a four-month high of 2.679% on Monday.

"The bond market finally got the relief from inflation it was hoping for," Bryce Doty, senior portfolio manager at Sit Investment Associates in Minneapolis, said in an email.

Markets are pricing in a 92% chance of a 25-basis-point Fed hike later this month, the CME FedWatch tool showed, but remain doubtful of further hikes after that.

Investor attention will also be on the Bank of Canada, with analysts expecting a second consecutive quarter-point rate hike at its upcoming meeting.

Lingering fear 

British banking shares also got a lift as Bank of England stress tests concluded the top 8 UK banks have enough capital to ride out a worse economic crisis than that seen in 2008.

"The great lingering fear among central banks is that the longer it takes to bring down inflation, the greater the risk of it becoming entrenched," Betashares chief economist David Bassanese said in a note.

Overnight in Asia, Australia's S&P/ASX 200 index rose 0.4%, while the bouncing yen knocked Japan's Nikkei down 0.8%.

Hong Kong's Hang Seng Index rose 1%, while bluechip Chinese shares fell 0.7% as tech stocks there jolted 2.5% lower amid renewed concerns about Beijing's attitude to the sector.

In the US, second-quarter earnings start to roll in this week, with heavyweight banks JPMorgan, Citigroup and Wells Fargo kicking things off as usual.

Wall Street banks overall are expected to report higher profits as rising interest payments offset a downturn in dealmaking.

Oil benchmark Brent futures breached $80 a barrel for the first time since May on Wednesday following the U.S. inflation data. US crude was 1% higher at $75.58 per barrel and Brent was at $80.01, up 0.77% on the day.