Shares, dollar gains after moderate US CPI data

By Herbert Lash

NEW YORK (Reuters) -Global shares and the dollar rose on Thursday after U.S. consumer price inflation moderated in July and boosted hopes the Federal Reserve is near the end of its rate hiking cycle – but key data that still awaits policymakers kept investors cautious.

The consumer price index (CPI) gained 0.2% last month, the Labor Department said, lifting the annualized rate to 3.2% from 3% in June. Economists polled by Reuters expected headline CPI to rise to rise a bit faster at 3.3%.

The pace of core CPI, which strips out volatile food and energy prices, slowed to 4.7% in July from 4.8% the prior month.

“This is a Fed friendly report because some of the pressures that we were previously seeing, particularly in travel-related components and new and used car prices, have shown a few months now of deceleration or even decline,” said Russell Price, chief economist at Ameriprise Financial (NYSE:) in Troy, Michigan.

“The shelter component, which is such a large weighting in the index, both headline and core, is also continuing to decelerate at a slow pace,” Price said.

Consumer prices have decelerated from a peak of 9.1% in June 2022 and are now close to the Fed’s inflation target of 2%. But investors remained cautious as another CPI report and jobs data await Fed policymakers before their next meeting in September.

“For the Fed, they still have a lot more data to get through,” said Brad Bechtel, global head of FX at Jefferies. “So, not enough in this one report to probably move the needle one way or the other.”

The main Wall Street stock initially jumped more than 1%, as did the major German, French, Italian and Spanish indices. Treasury yields eased, taking pressure off gold prices, and the dollar traded either side of break-even.

At the moment the doves calling for a hiking pause appear to have the upper hand, said Brad Conger, deputy chief investment officer at Hirtle Callaghan & Co in Conshohocken, Pennsylvania.

“There was clearly disagreement among the FOMC at the June meeting and the doves said, ‘let’s pause and see how much new data we can get’,” he said. “Let’s wait and see has been reinforced. The doves are winning.”

MSCI’s gauge of stock performance across the globe gained 0.38%, while the pan-European index rose 0.79%.

On Wall Street, the rose 0.54%, the gained 0.38% and the added 0.39%.

The , a measure of the U.S. currency against six peers, fell to 101.76 low and was last up 0.05% at 102.53. The euro rose 0.15% to $1.099.

Treasury and European bond yields also wobbled, with the U.S. 10-year benchmark last up 7.7 basis points at 4.084%, above the 4.0% floor it has mostly held since Aug. 1.

Germany’s 10-year yield, the euro zone’s benchmark, trimmed earlier gains and rose 4 basis points at 2.543%.

CHINA WOES

Asian stocks overnight remained near a two-week low, still reeling from China’s slip into deflation and an announcement of a U.S. ban on investments in China in sensitive technologies like computer chips.

MSCI’s broadest index of Asia-Pacific shares outside Japan slid 0.6%, briefly touching an almost one-month low. A technology sub-index fell to its lowest in more than two months.

Chinese data on Wednesday showed deflation at the consumer-price level and further declines for factory-gate prices in July, exacerbating concerns about the sputtering nature of the post-pandemic recovery.

China is the first G20 economy to report a year-on-year decline in consumer prices since Japan’s last negative headline CPI reading in August 2021.

Oil prices fell, with holding close to January highs, as speculation about another Fed rate hike faded following the inflation data and OPEC remained positive on the oil demand outlook.

futures fell $1.58 to settle at $82.82 a barrel, while Brent settled down $1.15 to $86.40.

Gold prices ticked up after the U.S. inflation data on speculation the Fed is at the end of its rate hike cycle.

U.S. settled 0.1% lower at $1,948.90 an ounce.