US Stocks, Bonds Rebound After Inflation Data
US Markets Bounce Back as Inflation Concerns Ease
A slower-than-expected rise in inflation despite the war-driven spike in oil prices has brought a degree of relief to investors, leading to a bounce in stocks and bonds from session lows. The Federal Reserve's preferred inflation gauge surprised traders, who had been fearing that mounting price pressures would force the central bank to raise interest rates.
Both markets rebounded after the release of the data, but action was fairly muted on Wall Street as renewed clashes in the Persian Gulf lifted oil prices. Inflation-adjusted consumer spending increased 0.1% last month, while the personal consumption expenditures price index rose 3.8% from a year earlier. The core PCE index, which excludes food and energy items, was up 3.3% from a year earlier. Separate figures showed the economy expanded in the first quarter at a 1.6% annualized pace, slower than previously estimated.
The ongoing conflict in the Middle East continues to weigh on the markets, with Iran and the US accusing each other of violating a fragile ceasefire. Ongoing negotiations via mediators are making progress, but there's little public sign of significant headway. Higher energy prices resulting from the closure of the Strait of Hormuz are likely to keep inflation elevated and force central banks to hold rates higher for longer.
Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data
The Federal Reserve's stance on interest rates remains uncertain, with Vice Chair Philip Jefferson expecting inflation to cool later this year as the effects of tariffs and higher energy costs wear off. However, he warned that inflationary risks remain tilted to the upside. Minneapolis Fed President Neel Kashkari emphasized the importance of bringing down inflation, stating that consumer prices are still "much too high."
Confidence among chief executive officers about the US economy tumbled in the second quarter as concerns intensified about supply chains and energy. The Conference Board's Measure of CEO Confidence dropped to 47 from 59 in the first three months of the year, indicating more negative than positive responses.
Market Highlights
| Market | Change |
|---|---|
| S&P 500 futures | Little changed |
| Nasdaq 100 futures | Little changed |
| Dow Jones Industrial Average futures | -0.2% |
| Stoxx Europe 600 | -0.6% |
| MSCI World Index | -0.1% |
| Bloomberg Dollar Spot Index | Little changed |
| Euro | +0.1% to $1.1639 |
| British pound | Little changed at $1.3422 |
| Japanese yen | +0.1% to 159.35 per dollar |
| Bitcoin | -2.5% to $73,265.93 |
| Ether | -3.6% to $1,984.82 |
| 10-year Treasuries | -1 basis point to 4.47% |
| Germany's 10-year yield | Little changed at 2.99% |
| Britain's 10-year yield | -1 basis point to 4.84% |
| 2-year Treasuries | Little changed at 4.03% |
| West Texas Intermediate crude | +2.3% to $90.73 a barrel |
| Spot gold | -0.6% to $4,428.99 an ounce |
Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline
Investor Takeaway
Investors may see a short-term rebound in stocks and bonds due to lower-than-expected inflation data.
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