US stocks open higher as investors take heart from consumer data

Wall Street stocks rose at the open on Friday as investor confidence grew that the inflation that has raised the prices for consumer goods has peaked.

The blue-chip S&P 500 share index was up 1.3 per cent while the Nasdaq Composite added 1.7 per cent in New York. Improving investor confidence has put the S&P on track for its first weekly gain in eight weeks, breaking its longest losing streak since 2001. In that period it has slipped into a bear market, generally defined as having lost a fifth of the value from its peak.

Investors were heartened by a fresh batch of economic data. The personal consumption expenditures price index, an inflation measure, rose 4.9 per cent in April from the same month last year, down from a reading of 5.2 per cent in March. The figure is favoured by the Federal Reserve because it strips out volatile food and energy costs.

However, the same report showed overall consumer spending increased 0.9 per cent in April from the previous month, exceeding expectations, and capping investor enthusiasm to push ahead too far.

“We have central banks [raising rates], inflation, war in Ukraine and China slowing down,” said Valentijn van Nieuwenhuijzen, chief investment officer at NN Investment Partners, a Dutch investment group. “We’ve had quite a long string of negative weekly performance so its unsurprising to get the occasional bounce,” he added.

“But it is pretty clear that there is a very large emotional and psychological factor running through markets,” he added, “and the moves are driven by sentiment rather than any change in the fundamental picture.”

Europe’s main indices were buoyed by the improving confidence, with the regional Stoxx 600 share index up 1.1 per cent and Germany’s Dax 40 up 1.3 per cent.

Minutes from the Fed’s latest meeting suggested the US central bank would increase its main interest rate by half a percentage point in June and July, although markets have latched on to hopes that the combination of rising borrowing costs and persistent inflation will not cause a recession.

“Sentiment overall is very bearish,” said Paul Leech, co-head of global equities at Barclays. “But people are also trying to reconcile the lack of positive catalysts ahead with how much bad news is already in the price.”

“The markets are very keen to look for the exit from all this,” added Nicola Morgan-Brownsell, multi-asset portfolio manager at Legal & General Investment Management. “But in reality we are not near it yet,” she added.

“Inflation may have come down a little bit but it is still a lot higher than it was,” she said, with “consumers likely still having some pain to come”, from elevated inflation rates.

The dollar index, which tracks the US currency against six others, traded flat per cent but was on track for a 1.3 per cent weekly loss, after hitting a two-decade high earlier this month.

The yield on the benchmark 10-year Treasury note fell 0.04 percentage points to 2.72 per cent in the continuation of a rally driven by hopes inflation was peaking. The equivalent German Bund yield dropped by the same amount to 0.95 per cent.