US Treasuries and Wall St stocks rally after inflation dips

US Treasuries and Wall Street stocks rose on Wednesday as US inflation data was slightly below forecasts, adding to traders’ belief that the Federal Reserve will halt its interest rate tightening policy.

The US benchmark S&P 500 gave up early gains but was up 0.2 per cent by midday, while the tech-heavy Nasdaq Composite traded up 0.7 per cent, briefly rising to its highest level since August.

The yield on the interest rate-sensitive two-year Treasury fell 0.07 percentage points to 3.95 per cent, while the yield on the 10-year dropped 0.06 percentage points to 3.45 per cent.

Data from the US Bureau of Labor Statistics showed that consumer price inflation for April eased to 4.9 per cent, its lowest level since April 2021, slightly below forecasts of 5 per cent. The consumer price index rose 0.4 per cent month on month in April, up from 0.1 per cent in March.

The news added fuel to investors’ hopes that the Fed’s decision last week to raise its benchmark interest rate to a target range of 5 per cent to 5.25 per cent would mark the end of its monetary tightening campaign. After more than a year of aggressive rate rises, US interest rates are at the highest level since mid-2007.

“This should present the Fed with all it needs now to hit the pause button on the rate rises,” said Richard Carter, head of fixed interest research at Quilter Cheviot.

In Europe, the region-wide Stoxx 600 benchmark was down 0.4 per cent, while London’s FTSE 100 was 0.3 per cent lower.

Traders are also paying attention to political negotiations over the US debt ceiling. President Joe Biden yesterday implored Republicans to “take the threat of default off the table” after failing to reach a breakthrough in a meeting with congressional leaders.

“The debt ceiling issue is a very serious one but the markets are not reacting yet, and I stress yet,” said Mike Zigmont, head of trading at Harvest Volatility Management. “If the political brinkmanship gets too dicey, markets are going to freak out. If the US actually defaults, look out below.”

Francesco Pesole, currency strategist at ING, said there was “growing concern that it might actually take a market sell-off in the equity or money markets to break the impasse”.

In Asia, Hong Kong’s Hang Seng index fell 0.5 per cent, and China’s CSI 300 lost 0.8 per cent.

China’s import volume contracted by the most in a year last month, while exports expanded at a slower pace than expected, heightening concerns over the pace of the country’s economic recovery since Beijing ditched strict zero-Covid measures in late 2022.

“The downturn in Chinese exports may still have some way to run before bottoming out later this year,” said Zichun Huang, China economist at Capital Economics.