(Bloomberg) -- A cooler-than-estimated inflation reading spurred gains in both stocks and bonds, easing concern about the potential for imminent Federal Reserve rate hikes amid a resurgence in oil prices.
The S&P 500 extended this month's advance, with a rally in chipmakers overshadowing losses in software shares after International Business Machines Corp.'s sales miss. Big banks kicked off the earnings season with solid results. Treasury 10-year yields fell six basis points to 4.57%. Money markets trimmed bets on a July Fed hike to 20%. US crude briefly topped $80.
Consumer prices dropped in June for the first time in six years and a key gauge of underlying inflation was little changed. Fed officials will likely welcome the data ahead of their upcoming meeting, though a new upturn in oil prices amid renewed hostilities in the Persian Gulf risks prolonging the fallout from the conflict.
"The Fed was losing patience with high inflation readings, and today's cooler-than-expected report gives them room to breathe," said Ellen Zentner at Morgan Stanley Wealth Management. "By surprising on the downside, it relieves immediate pressure for action."
As traders parsed the latest CPI, Kevin Warsh made his first appearance before Congress as Fed chairman. He noted Tuesday that policymakers have no tolerance for high inflation, reiterating a vow to tame price growth.
"The weaker inflation data likely keeps the Fed on hold for now and reduces any rate hike odds, but we remind investors that almost every communication that has emanated from Chair Warsh during his short tenure so far has been hawkish," said Skyler Weinand at Regan Capital.
Investors will likely feel more confident that inflation has peaked, easing concerns that the Fed will be forced to hike later this month. But this is not an all-or-none situation, according to Bret Kenwell at eToro. While inflation has cooled, it has not disappeared, he added.
"The well-behaved CPI print likely lowers pressure on the Fed to hike soon, but the re-ignition of hostilities in Iran means the prospect of hikes is far from over," said Kay Haigh at
"Although a path remains for rates to stay unchanged this year, the re-escalation of the conflict has narrowed it," he noted.
The interim peace between the US and Iran effectively collapsed after American forces reimposed a naval blockade and launched another wave of airstrikes, while Tehran attacked more oil tankers sailing through the Strait of Hormuz. Traffic through the waterway has dwindled and oil has surged since the attacks restarted.
Corporate Highlights:
A slew of Citigroup Inc.'s key business lines surpassed Wall Street's expectations, although the bank's record haul in stock trading fell short of the growth posted by rivals.
What Bloomberg Strategists say...
"Traders can breathe easier after June CPI came in softer than forecast, taking the attention of the two main macro pressures that had dominated the tape over the last week — higher oil prices and a rising probability of a July Fed hike — and shifting the focus back to the micro in individual earnings results."
—Michael Ball, Macro Strategist, Markets Live. For the full analysis, click here.
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.4% as of 10:57 a.m. New York time
- The Nasdaq 100 rose 1%
- The Dow Jones Industrial Average was little changed
- The Stoxx Europe 600 was little changed
- The MSCI World Index rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index fell 0.5%
- The euro rose 0.5% to $1.1441
- The British pound rose 0.4% to $1.3404
- The Japanese yen rose 0.3% to 161.96 per dollar
Cryptocurrencies
- Bitcoin rose 3% to $64,009.32
- Ether rose 6.2% to $1,875.78
Bonds
- The yield on 10-year Treasuries declined six basis points to 4.57%
- Germany's 10-year yield was little changed at 3.11%
- Britain's 10-year yield was little changed at 4.97%
Commodities
- West Texas Intermediate crude rose 0.8% to $78.73 a barrel
- Spot gold rose 2% to $4,083.25 an ounce
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