Stocks were mixed as US inflation data trended lower and bond yields fell

  • Global stock index turns positive
  • Currency markets are stable
  • US CPI comes in at 4.9% versus 5% expectations

SINGAPORE, May 10 (Reuters) – A gauge of global stock markets and bond yields fell on Wednesday after data showed U.S. consumer prices rose at a slower-than-expected pace in April.

The Consumer Price Index rose 0.4% after rising 0.1% in March, the Labor Department said, adding that CPI rose 4.9% in the 12 months to April, after advancing 5.0% on a year-over-year basis in March.

Futures showed the probability of the Fed raising rates again in June fell to 1.5% from 21.9% just before the data release, according to CME Group’s FedWatch tool. The prospect of a rate cut by the central bank later this year has also increased.

But the economy is still strong and it will take time to reduce inflation to the Fed’s 2% target, said Johan Graun, chief ETF market strategist at Alliance Investment Management in Minneapolis.

“On the back of another strong jobs report in March, with the unemployment rate at 3.4%, 9.5 million jobs added, and wage growth continuing to warm, the Fed will focus on their inflation-killing agenda for the next few months.” Gran said.

“The Fed doesn’t aim to get rate policy right at the right time, they aim to get it right over time.”

Shelter, a major component of the CPI, was slightly weaker, giving relief to markets as some looked for a stronger number, said Priya Mishra, head of global rates strategy at TD Securities in New York.

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“There is one big caveat, which is that the weakness came from hotels, not because of rents,” he said. “Maybe the market is happy here that inflation is coming down. It is, but we think it’s going to stick a little bit on the way down.”

Consumer prices fell 4.9% year over year, the 10th straight month of slowdown as prices reacted to the central bank’s rate-tightening cycle.

The two-year Treasury yield, which typically moves in step with rate expectations, fell to 3.904% from 4.05% before the CPI news. Benchmark 10-year notes fell 8.3 basis points to 3.439%.

The dollar retreated on expectations that the central bank would pause its interest rate hikes to curb high inflation, while crude oil futures gave up early gains after the release of data on rising US inventories showed weak demand.

The dollar index fell 0.14% and equity markets rose early as CPI data suggested the central bank’s most aggressive rate hikes in four decades were coming to fruition.

MSCI’s U.S.-centric gauge of stocks worldwide (.MIWD00000PUS) rose 0.09%, while the pan-European STOXX 600 index (.STOXX) fell 0.38%.

Stocks on Wall Street were mixed after an early rally. The Dow Jones Industrial Average (.DJI) fell 0.39%, the S&P 500 (.SPX) rose 0.23% and the Nasdaq Composite (.IXIC) added 0.86%.

Headwinds remain for the world’s largest economy as detailed talks on raising the US government’s $31.4 trillion debt ceiling begin Wednesday. The Treasury Department has warned that a disruptive default could come as soon as June 1.

China crackdown

Foreign exchange markets were treading water as markets weighed rhetoric from policymakers against traders’ hopes for a cut in US interest rates.

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The European Central Bank’s key interest rate is nearing its peak, but further adjustments are still necessary, ECB Governing Council member Mario Centeno said on Wednesday, adding that he expects rates to ease sometime next year.

The euro rose 0.14% to $1.0975.

China’s weak import figures for April kept Chinese and Hong Kong stocks on hold for a second straight session, with investors worried that the market’s recovery since the reopening of the economy is fading into an uneven recovery.

Hong Kong’s Hang Seng fell 1.3% and the yuan fell to a two-week trough.

The apparent crackdown on companies performing due diligence has shaken the sector and worried investors. CICC Capital, a unit of top Chinese investment bank China International Capital Corp ( 3908.HK ), has stopped using consultancy Capvision, Reuters reported.

US crude fell 1.6% to $72.56 a barrel, while Brent settled at $76.41 a barrel.

Gold prices fell as the CPI data was seen by some investors as mixed and spurred profit-taking.

U.S. gold futures were down 0.3% at $2,037.10 an ounce.

Editing by Simon Cameron-Moore

Our Standards: Thomson Reuters Trust Principles.

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