The results of the highly anticipated Consumer Price Index (CPI) for April showed that the Federal Reserve’s (Fed) measures are paying off. Now markets attention shifts to the release of the Personal Consumption Expenditure (PCE) next week.
The Nasdaq index gained ground among the major Wall Street indices on Wednesday as confirmation of the success of the Fed’s tightening monetary policy came in the form of a somewhat slower-than-expected decline in the CPI for the previous month.
While large-cap tech stocks like Apple Inc. and Microsoft Corp. climbed just over 1% each, US Treasury yields decreased, and the two-year bond once again traded below 4%. The Nasdaq also reached an eight-month high. The most susceptible to interest rate changes are technology equities.
As opposed to forecasts for a 5% increase, the CPI increased by 4.9% from a year earlier in April.
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At the Fed's June meeting, there is an 86% chance that rates would remain steady, according to the federal funds futures market. In a similar manner, the interest rate curve predicts rate reductions by the end of this year.
The Fed's favored inflation measure, the PCE number, is still pending until the end of next week. This indicator could support the popular perception that the central bank’s cycle of interest rate increases is complete and confirm the downward trend in inflation.
The indices experienced a sharp comeback following the announcement of the CPI data, although the Dow Jones 30 and S&P 500 reversed a large portion of the gains later in the day. Bond rates declined, which caused the Dollar to weaken. In particular, USD/JPY fell by 100 pips as a result. However, EUR/USD rebounded from its lows of 1.0940 after undergoing a technical correction that began at levels of 1.1090.
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According to a majority of the European Central Bank (ECB) Governing Council members, unlike the Fed, the ECB is anticipated to keep rising interest rates in its next meetings, which would likely result in the continuation of the pair's bullish trend in the near and medium term.
Sources: Bloomberg, Reuters
