Global shares edged higher and the dollar fell to a four-week low on Wednesday after the latest reading of U.S. inflation cemented bets that the U.S. Federal Reserve will not hike interest rates later in the session.
U.S. producer prices fell more than expected in May and the annual increase in producer inflation was the smallest in nearly 2-1/2 years, according to Labor Department data.
This was after the consumer price index (CPI) report on Tuesday showed prices barely rose in May, with just a 0.1% increase from the prior month.
The data appeared to support traders’ views that the Fed is unlikely to hike rates later on Wednesday. They now see more than a 95% chance of the central bank staying put, according to CME Group’s FedWatch Tool.
“Following yesterday’s lower inflation data and today’s improving numbers, markets are expecting the Fed to pause its rate hikes today,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
On Wall Street, the Dow Jones Industrial Average fell 136.57 points, or 0.4%, to 34,075.55, the S&P 500 gained 12.64 points, or 0.29%, to 4,381.65 and the Nasdaq Composite added 54.67 points, or 0.4%, to 13,627.99.
The pan-European STOXX 600 index rose 0.40% and MSCI’s gauge of stocks across the globe gained 0.46%, hitting its highest level since April 2022.
Wednesday’s data also sent U.S. Treasury yields lower with benchmark 10-year notes down 5.5 bps to 3.784%, from 3.839% late on Tuesday. The 30-year bond was last down 4.4 bps to yield 3.8969%, from 3.941%. The 2-year note was last was down 7.4 bps to yield 4.6222%, from 4.696%.
And in currencies, the dollar index hit a four-week low and was last down 0.532%, with the euro up 0.53% to $1.0848. The yen strengthened 0.59% versus the greenback at 139.40 per dollar, while sterling was last trading at $1.2694, up 0.65%.
Oil prices rose after bullish oil demand forecasts from the International Energy Agency (IEA) and OPEC.
U.S. crude recently rose 0.42% to $69.71 per barrel and Brent was at $74.66, up 0.5% on the day.
The S&P 500 and Nasdaq rose for a fifth straight session to hit multi-month highs on Wednesday, as investors bet the Federal Reserve would skip raising interest rates later in the day, while a drop shares of insurer UnitedHealth weighed on the Dow.
A larger-than-expected drop in U.S. producer prices in May due to a decline in the costs of energy goods and food signaled that inflation was cooling, further supported by data a day earlier that showed consumer prices moderated last month.
The U.S. central bank is expected to leave interest rates steady at the 5%-5.25% range, unchanged for the first time since it kicked off a historically aggressive round of policy tightening in March 2022 aimed at curbing soaring inflation.
“Whether or not this is the end of rate hikes for this cycle, we don’t know yet nor does the Fed,” said Brad Bernstein, managing director at UBS Wealth Management.
“I think we’ll get what’s called a hawkish pause today, where they’ll be talking about their concerns about inflation but at the same time not raise rates.”
Traders see a 95% chance the Fed will hold rates at the current levels, but have priced in nearly 60% odds of a 25-basis-point hike in July, according to the CME Fedwatch tool.
The yield on the two-year Treasury notes, which tend to move in step with short-term rate expectations, slipped to 4.6% after the release of producer prices data. [US/]
The Fed is scheduled to issue its policy statement and deliver new quarterly economic projections at 2 p.m. EDT (1800 GMT), followed by Chair Jerome Powell’s news conference.
Weighing on the Dow, UnitedHealth Group tumbled 7.4% after the health insurer warned of a spike in medical costs in the second quarter as more older adults undergo non-urgent procedures they had delayed during the pandemic.
The S&P 500 health sector fell 0.9%, while the S&P 500 managed healthcare index hit a near 17-month low, down 7.8%.