Stock market rally shows resilience to US inflation fears – Financial Times

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A trader works in the Cboe Volatility Index (VIX) pit on the floor of the Cboe Global Markets building in Chicago. With stocks gaining, the VIX index is tumbling © Bloomberg

Thursday 11.30 GMT

What you need to know

  • Stock markets shrug off US inflation data
  • European bourses up around 1% apiece
  • Wall Street also expected to make solid gains
  • Wider trend for a weaker dollar remains
  • 10-year Treasury yield hits fresh four-year high
  • Gold hovers at three-week high

Leading quote

“Remarkably, the confirmation of a much-feared inflation pick-up in the US did no damage to equity market sentiment,” says Johanna Chua at Citi.

“This suggests that investors were likely over-positioned for the event risk, and that the fear of missing out dominated the behaviour of investors who had waited out the recent sell-off to ‘buy the dip’. Similarly, the dollar rapidly gave up its small post-CPI bounce, with the dollar index dropping back towards its recent low. These moves allowed fixed income markets to reprice Fed tightening expectations.”

Hot topic

Global stock markets are rallying, showing their resilience to concerns about an overheating US economy, with reaction to stronger-than expected inflation data confined to the bond market.

There is no sign of a resumption of last week’s bout of turmoil, with gains for European and Asian stocks tracking strength on Wall Street.

The trend for a weaker dollar also remains, with investors expecting other central banks to catch up with the Federal Reserve’s rate-tightening cycle, even as inflation returns to the US.

  • The Europe-wide Stoxx 600 is up 1%
  • London’s FTSE 100 is also up 1%
  • The Xetra Dax 30 in Frankfurt is up 0.9%
  • Hong Kong’s Hang Seng added 2% ahead of the lunar new year holiday
  • Japan’s Topix gained 1%

Overnight in New York, initial jitters about the consumer price index data evaporated by the close of play with the S&P 500 ending the day up 1.3 per cent. Futures trade is pointing to further gains of 0.7 per cent.

There is a more lingering reaction on sovereign bond markets, where 10-year US Treasury yields are at renewed four-year highs, up 2 basis points at 2.9296 per cent, as investors cut exposure to the debt. It started the year trading at 2.43 per cent.

US inflation figures released on Wednesday showed “core” consumer prices rose 0.3 per cent in December, keeping the year-on-year rate at 1.8 per cent, against expectations of a dip to 1.7 per cent. The data added to concerns that the US Federal Reserve might raise rates more aggressively this year than had been expected.

Forex

In currencies, the dollar index is down 0.3 per cent to 88.844, a two-week low. The yen touched a fresh 15-month peak at ¥106.38 per dollar, taking it 0.6 per cent stronger on the session.

The euro is trading around a two-week high against the dollar at $1.2490 and the pound is 0.4 per cent stronger at $1.4045.

Commodities

Brent crude is 0.8 per cent higher at $64.84 a barrel and US market West Texas Intermediate is 1.3 per cent higher at $61.36, buoyed by a lower-than-expected gain in US stockpiles last week. A US Energy Information Administration report released on Wednesday showed stockpiles rose by 1.8m barrels — less than the 2.8m barrels that analysts were expecting.

Gold is up 0.3 per cent at $1,354.02 an ounce, hovering at a three-week high.

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