US stocks extend gains on signs of steadying inflation

US stocks rose on Thursday, extending gains from the previous session after inflation data for the world’s largest economy came in lower than expected.

The broad S&P 500 added 0.6 per cent after the opening bell, having closed 2.1 per higher on Wednesday. The Nasdaq Composite — which is weighted towards technology shares that are more sensitive to changes in interest rate expectations — rose 0.6 per cent, after closing up 2.9 per cent in a move that took its gains to 20.7 per cent from a low in mid-June.

Figures on Wednesday had shown that the US consumer price index rose 8.5 per cent year on year in July, a slower annual increase than the 9.1 per cent figure recorded for June and below economists’ forecasts. There was no increase in the CPI month-on-month to July, after a 1.3 per cent rise in June.

Fresh data on Thursday revealed that prices paid to US producers for goods and services registered an unexpected fall in July — declining by 0.5 per cent month on month, on the back of lower petrol costs. This marked the first monthly decline for the US producer price index since April 2020.

On an annual basis, prices rose 9.8 per cent in July — lower than economists’ expectations of a 10.4 per cent increase and below June’s figure of 11.3 per cent.

Investors have been watching inflation data closely ahead of the Federal Reserve’s September monetary policy meeting, searching for clues about the extent to which the central bank will raise borrowing costs to curb price growth. The Fed has lifted interest rates by 0.75 percentage points in two consecutive meetings over the summer.

“I’m not sure this alone is a needle mover,” said Liz Ann Sonders, chief investment strategist at Charles Schwab, in relation to the PPI data. “It’s more just a confirmation that maybe the peak is in.”

In European equity markets, the regional Stoxx 600 slipped 0.1 per cent lower. Germany’s Dax gained 0.1 per cent. London’s FTSE 100 lost 0.6 per cent. In Asian markets, Hong Kong’s Hang Seng closed up 2.4 per cent.

“It’s encouraging for investors that you see some cooling of inflation but one swallow doesn’t make a spring,” said Guillaume Paillat, a multi-asset portfolio investor at Aviva, pointing to strong US labour market data released last week. “You’ve got to be cautious.”

Mary Daly, president of the San Francisco branch of the Fed, told the Financial Times on Wednesday that it was too early to “declare victory” over inflation. The top Fed official said a half-percentage point rise in September was her “baseline” but she did not rule out another 0.75 percentage point rise.

Other Fed officials also expressed caution, with Charles Evans, the president of the Chicago Fed, saying on Wednesday that inflation remained “unacceptably” high.

In government debt markets, the yield on the policy-sensitive two-year US Treasury bond slipped 0.07 percentage points lower to 3.14 per cent as its price rose, after a rally in the previous session. The yield on the 10-year benchmark Treasury note fell 0.02 percentage points to 2.76 per cent.

In currency markets, the dollar lost a further 0.4 per cent against a basket of six currencies after declining on Wednesday, with the euro and yen holding on to gains made after the inflation data.