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Stocks up, dollar down; U.S. inflation data surges as forecast

EconomyJan 12, 2022 05:13PM ET
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2/2 © Reuters. FILE PHOTO: A screen shows Nikkei index after a ceremony marking the end of trading in 2021 at the Tokyo Stock Exchange (TSE) in Tokyo, Japan December 30, 2021. REUTERS/Kim Kyung-Hoon 2/2

By Koh Gui Qing

NEW YORK (Reuters) - World stocks rose on Wednesday while U.S. Treasury yields and the dollar fell, after the latest U.S. inflation data showed price pressures surging but within expectations, apparently suggesting the Federal Reserve will not have to hike interest rates too aggressively.

Oil prices hit two-month highs, lifted by tight supply and easing concerns over the spread of the Omicron coronavirus variant.

Data showed the U.S. consumer price index leaping a whopping 7% in the 12 months through December, the biggest annual increase since June 1982. But it was within forecasts, which appeared to reassure investors.

"Today's inflation report continued to reinforce the theme that gaudy price gains are not standing in the way of demand," said Rick Rieder, BlackRock (NYSE:BLK)'s Chief Investment Officer of Global Fixed Income and Head of the BlackRock Global Allocation Investment Team.

"We don't think the Fed will overreact to this condition," Rieder said, adding that he expected the Fed to raise rates in March.

The benchmark S&P 500 index gained 0.28%, the Nasdaq Composite added 0.23%, and the Dow Jones Industrial Average inched up 0.11%. Gains were stronger for European and Asian shares.

The pan-European STOXX 600 index rose 0.65%. Britain's FTSE 100 climbed 0.81% to one-year highs, lifted by mining and oil giants. (L)

Japan's Nikkei rose 1.9% overnight, while MSCI's broadest index of Asia-Pacific shares outside Japan closed up 1.95%.

Buoyant global equity markets lifted MSCI's gauge of stocks across the globe up by 0.8%.

Benchmark 10-year Treasury yields edged down to 1.7481% after falling as far as 1.7269% -- more than seven basis points from an almost two-year high hit on Monday. [US/]

Fed fund futures are predicting nearly four rate hikes this year, a seismic change from a few months ago. Long-term rates have been relatively steady.

U.S. interest rate pricing is peaking at 1.5% by the third quarter of 2024, far lower than previous U.S. rate tightening cycles.

"It seems to be a fait accompli that the Fed will hike interest rates quickly, even if inflation comes in a little below expectations," Commerzbank (DE:CBKG) analysts said in a client note.

"In a worst-case scenario, lift-off will not be in March, but in May or June."

The dollar hit a two-year low on the inflation report, with the dollar index falling 0.666% to 94.97 against a basket of six major currencies. A struggling dollar lifted the euro up 0.66% to a near two-month high of $1.14430, and boosted spot gold by 0.2% to $1,825.40 an ounce.

The prospect of rate hikes by the Bank of England also boosted sterling. The pound leapt 0.52% to $1.37045, its highest in more than two months against the dollar.

In oil markets, U.S. crude jumped 1.92% to $82.78 per barrel and Brent was at $84.76, up 1.24%. [O/R]

"Omicron is yesterday's story now," said Luca Paolini, chief strategist at Pictet Asset Management. "The market isn't moving on Omicron but on earnings, Fed and economic data." (Graphic: US CPI expected to hit 7%, https://fingfx.thomsonreuters.com/gfx/mkt/zjpqknabypx/USCPI1201.PNG)

Not all major central banks are tightening policy though. In China, a softer than expected reading on prices has drawn bets on policy easing.

Five-year Chinese government bond futures rose eight ticks to an 18-month high before trimming gains. Yuan gains were also capped. [CNY/]

Stocks up, dollar down; U.S. inflation data surges as forecast
 

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Comments (9)
William Bailey
William Bailey Jan 21, 2022 8:13AM ET
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Old and incorrect news
Chad RicherThanYou
Chad RicherThanYou Jan 12, 2022 9:44AM ET
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The weak USA is in decline. High inflation, shortages, low productivity. Meanwhile chinese stocks and metals rallying. Writing is on the wall. The dollar is done for.
jj mm
jj mm Jan 12, 2022 5:15AM ET
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Powell is so funny....yesterday inflation was transitory today inflation is not transitory tomorrow ..yeah...transitory and so on
Jay Cho
Jay Cho Jan 12, 2022 5:15AM ET
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Actually, he maintained his stance that inflation was transitory, until he changed his stance in December. Since then, he has maintained that stance. So to sum it up for you, he said it was transitory, then said he was wrong and that it wasnt. No back and forth at all. 🤦‍♂️
Json Jude
Json Jude Jan 12, 2022 3:22AM ET
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The dollar may need to see some pullback and fresh news on the interest rate front before finding direction." that's your above statement on dollar but at European opening session today, both GBP, Euro and Gold sell against USD... Please is there any good reason for such movement?
Maciej Maciej
green_bastard Jan 12, 2022 3:22AM ET
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no reason, check Powell's stocks portfolio. he's Good:)
Darrell Peterson
Darrell Peterson Jan 12, 2022 1:41AM ET
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Forgot, Bullcrap religion also.
Darrell Peterson
Darrell Peterson Jan 12, 2022 1:38AM ET
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You can take your Monarchs, elected officials , tyrants and Autocrats, in the end they are all useless puppets. The head of the Federal Reserve rules all.
TJ Theodore
TJ Theodore Jan 12, 2022 1:10AM ET
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Powell sounded pretty ****hawkish to me.
perplexed76 .
perplexed76 . Jan 12, 2022 12:42AM ET
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first they built a house of cards, now they are scared to breathe
Adam Paine
Adam Paine Jan 11, 2022 10:42PM ET
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this will undoubtedly come unraveled
 
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