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  • Writer's pictureThe San Juan Daily Star

Inflation data spurs stocks rally, drop in U.S. yields

Two-year Treasury yields rose to a one-week high as investors grew more confident that recent stress in the banking sector would be contained, but remained cautious about the impact that recent bank failures would have on the economy.

The U.S. dollar slipped to a one-week low against the euro as German inflation data helped lift the common currency.

And oil prices rose with support from lower U.S. crude stockpiles and a halt to exports from Iraq’s Kurdistan region, which offset pressure from a smaller-than-expected cut to Russian supplies.

“Investors seem to be increasingly confident the bank turmoil is going to continue to ease and that we’re near a peak in central bank rate hikes,” said Jeff Kleintop, chief global investment strategist at Charles Schwab in Celebration, Florida.

“We’re seeing this rally driven by stocks that are sensitive to the pace of growth and inflation,” said Kleintop, who also pointed to climbing oil prices and weakness in the safe haven dollar, which investors flock to when they are worried.

“Definitely a more bullish tone is starting to pick up here on Wall Street,” said the strategist, though he cautioned that there could still be some volatility ahead.

Among equities indexes, the Dow Jones Industrial Average rose 34.91 points, or 0.11%, to 32,752.51, the S&P 500 gained 14.85 points, or 0.37%, to 4,042.66 and the Nasdaq Composite added 68.98 points, or 0.58%, to 11,995.21.

The chip sector also extended Wednesday’s gains as falling inventories at Micron Technology were seen as an encouraging sign for the sector as well as the broader economy.

“If inventories have come down for semiconductors that stands to reason it may have come down for many other products as well,” said Kleintop, who added that this “feeds right into economic growth.”

Beyond Wall Street, the pan-European STOXX 600 index rose 1.03% and MSCI’s gauge of stocks across the globe gained 0.61%.

Emerging market stocks rose 0.66%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.62% higher, while Japan’s Nikkei lost 0.36%.

In currencies, the dollar index fell 0.438%, with the euro up 0.54% to $1.0902. The Japanese yen strengthened 0.20% versus the greenback at 132.55 per dollar, while Sterling was last trading at $1.2372, up 0.5% on the day.

In U.S. Treasuries, benchmark 10-year notes were down 0.4 basis points to 3.562%, from 3.566% late on Wednesday. The 30-year bond was last down 1.7 basis points to yield 3.7613%. The two-year note was last was up 3.7 basis points to yield 4.1174%.

In commodities, U.S. crude recently rose 1.8% to $74.28 per barrel and Brent was at $79.20, up 1.18% on the day. Spot gold added 0.7% to $1,978.49 an ounce. U.S. gold futures gained 0.64% to $1,979.40 an ounce.

In crypto currencies, Bitcoin last fell 0.91% to $28,094.00.

US consumer spending rose moderately in February, and while inflation cooled, it remained elevated enough to possibly allow the Federal Reserve to raise interest rates one more time this year.

Additional data showed US consumer sentiment fell for the first time in four months in February on concerns of an impending recession, although the impact of the recent banking crisis was muted, reported Reuters. Expectations for a 25 basis point rate hike at its May meeting dipped to about 50%, with no hike seen to be just as likely.

However, Boston Federal Reserve President Susan Collins said the inflation data doesn’t alter the Fed’s monetary policy path yet, while New York Fed President John Williams said financial conditions will be a key contributor to his thinking about what’s next for central bank interest rate policy.

“Fed fund futures are basically pricing in a coin flip of a 25 (basis point) hike in May, but calling that the end of it, if they even go there, so anytime the data doesn’t give the Fed a reason to re-engage hawkishly, the market is going to like it,” said Ross Mayfield, investment strategist at Baird in Louisville, Kentucky.

“It’s not like it was a soft print but it was below consensus on pretty much every metric and the core data is creeping closer to where the Fed wants it.”

On Wall Street, US stocks rose, with the S&P 500 set to notch its second straight quarterly advance as it closed at its highest level since February 15, after advancing for three straight weeks to close out the month.

The Nasdaq Composite, up 16.8% in the first quarter, snapped a streak of four straight quarterly declines.

On the session, the Dow Jones Industrial Average (.DJI) rose 415.12 points, or 1.26%, to 33,274.15, the S&P 500 (.SPX) gained 58.48 points, or 1.44%, to 4,109.31 and the Nasdaq Composite (.IXIC) added 208.44 points, or 1.74%, to 12,221.91.

European shares were also higher, after a reading of inflation in the euro zone dropped by the most on record in March, although the core price growth, which excludes food and energy, accelerated.

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