US Stocks Rise Again on Lower Rate Expectations – Nasdaq up 0.6%
US equity markets extended their rally overnight after another key US inflation report came in below market expectations, reinforcing the view that inflationary pressures continue to ease and reducing the likelihood of any near-term Federal Reserve rate hikes. Investors responded positively to the data, sending all three major US indices higher while Treasury yields declined sharply across the curve.
The Dow Jones Industrial Average gained 0.29% to close at 52,658, while the broader S&P 500 rose 0.38% to finish at 7,572. Technology stocks again outperformed, with the Nasdaq climbing 0.62% to end the session at 26,269 as lower bond yields provided further support to the sector.
The softer inflation data sparked another strong move in the US bond market, with the 2-year Treasury yield falling 5.8 basis points to 4.135% and the benchmark 10-year yield dropping 4.2 basis points to 4.547%. Despite the decline in yields, the US Dollar Index was little changed, easing just 0.02% to 100.47 as traders balanced the prospect of a more patient Federal Reserve against ongoing geopolitical uncertainty.
In commodity markets, oil prices continued to edge higher, remaining near one-month highs as hostilities in the Middle East showed little sign of easing. Brent crude gained 0.26% to settle at $80.16 per barrel, while WTI crude added 0.70% to finish at $84.95 per barrel as concerns over potential supply disruptions continued to underpin prices.
Gold also experienced another volatile trading session before closing modestly higher. The precious metal added 0.10% to finish at $4,057.81 per ounce, supported by lower Treasury yields and persistent geopolitical tensions.
Yen Remains in Focus for FX Traders
The Yen remains very much in focus for FX traders at the moment with USDJPY still trading at elevated levels. The Japanese authorities have made several attempts at pushing the pair lower in the last several weeks with active intervention combining with fresh policy updates, however fundamentals are still pushing the pair towards record levels. Even after the last couple of US trading sessions, where inflation data has come in well below expectation, the USDJPY has bounced back well on any dips. Increasing tensions in the Middle East are not helping the cause and some traders are now expecting the pair to break through to fresh levels north of recent highs just under 163.00. Bear’s hopes probably now sit with an improvement of conditions in the Middle East, while a continuation of hostilities will increase inflationary concerns for the coming months and probably see more uncomfortable trading levels for the Ministry of Finance.
More US Data Ahead Today for Traders
Traders are preparing for another busy day ahead today with more geopolitical updates likely throughout the sessions and more key data due out later in the day. There nothing of note again on the calendar in the Asian session today, however there will be a strong focus on the UK once London opens and we have more key US data due out early in the New York day. UK GDP data (exp 0.0%) will be released during the European session before the focus shifts to the United States, where Retail Sales (exp +0.2% m/m, Core 0.0% m/m), Weekly Unemployment Claims (exp 218k) and the Philadelphia Fed Manufacturing Index (exp12.7) are all due out. These releases are expected to provide further insight into the health of the US economy and could influence expectations for Federal Reserve policy heading into next week’s trading.
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