Stock markets jump as US inflation cools, with eyes on Fed

AFP , Wednesday 12 Jun 2024

Stock markets surged Wednesday after data showed US inflation slowed in May, raising hopes the Federal Reserve will cut interest rates later this year.

Traders work on the floor of the New York Stock Exchange during morning trading in New York City. AFP


Wall Street's main indices opened higher following records the previous day while European markets rebounded after falling earlier this week following the far-right's strong performance in EU Parliament elections.

The dollar fell against other major currencies as lower rates make the greenback less attractive.

The Fed is widely expected to keep rates unchanged at the end of a regular monetary policy meeting later Wednesday, but markets are keenly awaiting its "dot plot" guidance, which shows its outlook for rates this year.

The spotlight will also fall on Fed chief Jerome Powell as investors will listen for any hints about the central bank's plans during his conference following the meeting.

The drop in consumer inflation was welcomed by traders who have worried that the Fed may introduce fewer rate cuts -- or none at all -- than previously thought this year.

"The cool inflation numbers should boost investor confidence for a Fed rate cut in the second half of 2024," said Bret Kenwell, US investment analyst at trading platform eToro.

"But will the Fed throw gasoline or cold water on the fire when it comes to rate cuts?"

The annual consumer price index (CPI) came in at 3.3 percent in May, down 0.1 percentage point from April, the Labor Department said.

With inflation slowing and other recent data showing signs the US economy is cooling, the market is pricing in two rates cuts by the end of the year, Kenwell said.

Forecasts for the number of reductions the Fed will make in 2024 have been whittled down from six at the start of the year following a string of figures indicating the US labour market remains solid and the economy remains resilient.

"This confuses the outlook for the US economy: jobs growth is strong, yet inflation is moderating," said Kathleen Brooks, research director at trading platform XTB.

"What should the Fed do in this situation? If the market reaction is anything to go by, then the Fed will be dovish later on this evening when they announce their latest policy report."

The US inflation figure was "also giving European stocks a chance to recover", she added.

She said the markets were "calmed" by a commitment by French President Emmanuel Macron that he would not resign on the outcome of the snap legislative elections which he called after his centrist party lost to the far right in weekend EU Parliament elections.

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