Wall St Cheers Cool CPI With Stock Surge, Dollar And Yield Decline

(July 12,2023- Reuters)

July 12 (Reuters) - Wall Street stocks surged on Wednesday and the dollar and Treasury yields fell after new inflation data showed a slowdown in the seemingly relentless rise of U.S. consumer prices.

The Consumer Price Index (CPI) gained just 0.2% last month, the Labor Department said on Wednesday, lifted by rises in gasoline prices as well as rents, which offset a decrease in the price of used motor vehicles.

CPI advanced 3.0% in the 12 months through June, down from 4.0% in May and the smallest year-on-year increase since March 2021.

Wall Street cheered the news, sending stocks up. The Dow Jones Industrial Average (.DJI) rose 0.84% to 34,548.67, the S&P 500 (.SPX) gained 1.05% to 4,485.96 and the Nasdaq Composite (.IXIC) added 1.39% to 13,951.80.

U.S. stock gains helped push up MSCI's main 47-country world index (.MIWD00000PUS), which is now around 14% higher for the year, bouncing back from rate hike-induced lows in late 2022.

"The trend that investors have been waiting for is finally here, softer Core CPI prints or hints of pre-COVID normality," Alexandra Wilson-Elizondo, deputy chief investment officer of Multi Asset Solutions at Goldman Sachs Asset Management, said in an email, echoing positive analyst sentiment.

DOLLAR, YIELDS RETREAT

The currency market was moving on the CPI news too. The dollar index (.DXY) was down nearly 1% on Wednesday at 100.76, near its lowest point in a year.

The yen had clambered back near 140 to the dollar, up around 1.3%, and sterling hit a 15-month high, up 0.4% on the day, as the Bank of England said the UK was coping with higher interest rates. /FRX

U.S. Treasury yields also dropped, with the 10-year Treasury yield now at 3.885%, down 9.7 basis points . The two-year , which typically moves in step with interest rate expectations, was down 17.1 basis points at 4.725%.

Wednesday's moves saw euro zone bond yields decline, with Germany's 10-year yield dipping to 2.56%, having hit a four-month high of 2.679% on Monday.

"The bond market finally got the relief from inflation it was hoping for," Bryce Doty, senior portfolio manager at Sit Investment Associates in Minneapolis, said in an email.

Markets are pricing in a 95% chance of a 25-basis-point Fed hike later this month, the CME FedWatch tool showed, but remain doubtful of further hikes after that.

Investor attention will also be on the Bank of Canada, with analysts expecting a second consecutive quarter-point rate hike at its upcoming meeting.