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Light inflation data boosts stocks, sending USD and rates down

stock markets

Wall Street rallied for the second consecutive trading day on lighter-than-expected US inflation data. The headline and core CPI printed at 7.1%, and 6% year on year respectively, lower than estimates of 7.3% and 6.2%. It is the first-time inflation cooled for two months in a row this year, which further strengthened the odds of a slowdown in rate hikes by the Fed. The FOMC meeting results will be on close watch tomorrow when the Reserve Bank is expected to the raise interest rate by 50 basis points, taking the fund rate to 4.25%-4.5%. The CME Fed Funds futures are now pricing for a Fed pause in May 2023, with the terminal rate at 4.75-5%. Both the US dollar index and the US 2-year bond yields fell to their lowest seen in June, sending the other G-10 currencies and commodity prices higher. However, it is still worth caution, since a Fed slowdown is widely expected, markets may have priced in such a change, “buy the rumour, sell the news” usually happens when the fact offers no surprise.   

  • All three US benchmark indices ran off session highs, despite the broad market rally.  All 11 sectors in the S&P 500 finished higher for the second straight trading day, with Energy, Real Estate and Communication Services leading broad market gains, all up about 2%. In big techs, Meta Platforms Inc. outperformed, jumping nearly 5%. Tesla shares, however, fell 4% to a fresh one-year low.
  • Apple is to allow third-party apps to be downloaded to iPhone and iPad to comply with the EU laws over its monopoly over other app stores. Apple shares fell off a session high and finished 0.7% higher.
  • Asian equity markets are set to open higher. ASX futures were up 0.17%, Nikkei 225 futures advanced 0.57% and Hang Seng Index futures fell 0.12%.  
  • Commodity currencies, including the Australian dollar and New Zealand dollar, gained 1.6% and 1.3% against the greenback, respectively, amid the sharp fall in the USD. NZD/USD surged 17% in the last two months in the wake of cooled US inflation and a consistent hawkish RBNZ.  
  • Gold futures jumped to a fresh 6-month high, thanks to a further drop in both the US dollar and the US bond yields. But from a technical perspective, the gold price may still face a near-term pullback risk toward the 100-day moving average of around 1,720.
  • Crude oil prices jumped for the second straight trading day amid a relief rally in the broad market. The recession fears faded amid another cooled US CPI data, lifting commodity prices. On the other hand, China’s reopening optimism continued to fuel the risk assets’ comeback.  
  • Both Bitcoin and Ethereum rose to their one-month highs, above 17,800 and 1,300, following the tech stocks’ outperformance. And the former FTX CEO Sam Bankman-Fried is filed with multiple criminal counts. 


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