Global stocks rise as US inflation moderates

Markets see less than 5% chance for rate cut of at least 25bps

LONDON/NEW YORK:

A gauge of global stocks rose for the first time in four sessions on Friday as equities steadied after a sharp selloff and US economic data showed an improving inflation landscape, sending Treasury yields lower.

The Commerce Department said the personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, edged 0.1% higher last month after being unchanged in May, matching estimates of economists polled by Reuters.

In the 12 months through June, the PCE price index climbed 2.5%, also in line with expectations, after rising 2.6% in May.The data likely paves the way for the Fed to begin cutting rates in September, as the market widely expects.

“Everybody’s waiting to find out if the Fed is going to be confident enough to cut. If this doesn’t make the Fed confident enough, nothing will,” said Brian Jacobsen, Chief Economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

“The economy is slowing and if they don’t cut it could screech to a halt. They do have some time because certainly there’s still some economic momentum but that economic momentum is fading fast.”

The Fed is scheduled to hold its next policy meeting at the end of July. Markets see a less than 5% chance for a rate cut of at least 25 basis points (bps) at that meeting, but are fully pricing in a September cut, according to CME’s FedWatch Tool, opens new tab. On Wall Street, US stocks were rallying in early trade, with small cap, stocks once again leading gains as the market continues its recent rotation into undervalued names.

However, megacap names also showed signs of stabilising, with the Nasdaq up nearly 1% after three straight days of declines that sent the index down nearly 5%.

The Dow Jones Industrial Average, rose 555.71 points, or 1.39%, to 40,490.78, the S&P 500, gained 49.40 points, or 0.91%, to 5,448.62, and the Nasdaq Composite, gained 128.50 points, or 0.75%, to 17,310.23. European shares were also higher after two consecutive sessions of declines, but still on track for a weekly decline.