Stocks Rise as CPI Boosts Bets on Fed Skipping

Equity markets experienced an upward trajectory in response to the latest U.S. inflation figures, which further fueled the anticipation that the Federal Reserve might opt for a pause in its scheduled interest-rate hikes slated for September.

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Following a two-day decline, the stock market showcased gains across all major segments within the S&P 500 index. The Nasdaq 100, which leans towards technology stocks, demonstrated notable outperformance, largely attributed to the surge in prominent entities such as Tesla Inc., Apple Inc., and Microsoft Corp. Meanwhile, the Treasury two-year yields, which are recognized for their heightened sensitivity to impending policy adjustments, receded by two basis points to 4.79%. Additionally, the dollar exhibited a retreat against a majority of its counterparts in the developed-market landscape.

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Swaps related to Federal Reserve policies reflected a marginal decrease in the probability of an additional rate hike later this year. The release of a report on Thursday unveiled that the core consumer price index, excluding the often-volatile components of food and energy costs, experienced a 0.2% increase for a consecutive month. This marked the smallest back-to-back increments witnessed in over two years, thereby reinforcing the ongoing trend of disinflation that has prevailed over recent months.

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Mary Daly, President of the Federal Reserve Bank of San Francisco, characterized the released data as broadly aligning with expectations. She emphasized that the central bank is still engaged in substantial efforts before asserting victory over inflation. Furthermore, she conveyed that the decision to enact further rate increases and the duration of maintaining interest rates at certain levels remain matters that are yet to be definitively determined by policymakers.

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