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Stocks rally, yields drop as U.S. CPI data calms investors

Stock MarketsJun 10, 2021 04:46PM ET
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2/2 © Reuters. FILE PHOTO: A passerby wearing a protective mask is silhouetted in front of a screen of blank prices on a stock quotation board after Tokyo Stock Exchange temporarily suspended all trading due to system problems, amid the coronavirus disease (COVID-19) pa 2/2

By Herbert Lash

NEW YORK (Reuters) - Global stock markets rallied to new highs and bond yields slid on Thursday after a jump in U.S. inflation was viewed as insufficient to alter the Federal Reserve's easy monetary policy stance that rising consumer prices will be transitory.

MSCI's global benchmark, the S&P 500 and a pan-European stock index surged after the U.S. Labor Department said the consumer price index in the 12 months ended in May accelerated 5.0%, the biggest year-on-year increase since August 2008.

The report was largely in line with expectations, said Subadra Rajappa, head Of U.S. rates strategy at Societe Generale (OTC:SCGLY) in New York.

"The market is really buying into the narrative that the rise in inflation is in fact transient because you're not seeing that necessarily being priced into fears in the bond market," Rajappa said.

The 10-year U.S. Treasury note's yield fell to a three-month low of 1.440%. When investors were worried about inflation later in March, the yield had spiked to 1.776%.

Many now believe economic growth will slow and that any acceleration in inflation will be temporary, said Joseph LaVorgna, chief economist for the Americas at Natixis in New York.

"The (equity) market is going to ignore the data. It's going to rally regardless," LaVorgna said.

"If it turns out the economy is weaker in the next three to six months than people think, it won't even matter if inflation continues to surprise to the upside," he said.

MSCI's all-country world index rose 0.37% to 718.23, setting a record close and intraday high. The pan-European STOXX 600 scaled a new peak before closing slightly higher at 454.56. The European Central Bank raised its recovery outlook and pledged to keep stimulus flowing.

On Wall Street, the Dow Jones Industrial Average rose 0.06%, the S&P 500 gained 0.47%, climbing past its previous record, and the Nasdaq Composite added 0.78%, spurred by growth stocks that thrive on low interest rates.

While wages are going up, prices for most commodities outside of energy have softened, as lumber, grains and meat have come down, said Thomas Hayes, chairman and managing member of Great Hill Capital LLC.

Inflation's "rate of change had people very alarmed, particularly in the commodities basket. The softening has people a little bit more at ease," Hayes said. "With the 10-year barely moving off this news, I'm inclined to start to put money to work."

Surprisingly strong U.S. inflation in April had rattled investors, prompting caution ahead of Thursday's May data. Yet risk assets have remained buoyant as central bankers on both sides of the Atlantic signaled willingness to keep monetary taps open until recovery takes hold.

The ECB said it would buy bonds at a "significantly higher" pace than earlier this year, reaffirming its March pledge as most central bank watchers had expected.

In the United States, data showed people filing new claims for unemployment benefits fell last week to the lowest level in nearly 15 months.

The dollar index fell 0.11% to 90.041, with the euro down 0.02% to $1.2176. The Japanese yen strengthened 0.29% versus the greenback at 109.30 per dollar.

Oil prices edged up to their highest in more than two years in volatile trade on optimism for strong economic demand after new U.S. unemployment claims fell to their lowest since the country's first wave of COVID-19 last year.

Brent futures settled up 30 cents at $72.52 a barrel by 1:24 p.m. EDT (1724 GMT), while U.S. West Texas Intermediate (WTI) crude rose 33 cents to settle at $70.29 a barrel.

U.S. gold futures settled at 1,896.40 an ounce.

Stocks rally, yields drop as U.S. CPI data calms investors
 

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Comments (9)
gary leibowitz
gary leibowitz Jun 11, 2021 2:43PM ET
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Like early pandemic brokerage firms telling everyone the market ignored it for a reason. Bond market controlled by FED and if they say the emperor has no cloths you better believe it. Commodities are ALREAY thru the roof. The correction off a huge run is not a sign that everything is "normal". Housing, used cars are at INSANE frenzy. China CPI went from zero to 9% in 5 months. JOLT with 9 million jobs begging to be filled. Silly market, silly mass psychology.  Like Jews believing ********was a fade.  Rude awakening ahead.
Jouni Matero
Jouni Matero Jun 10, 2021 3:30PM ET
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Calms investors, you mean billionaires. How about investors like retailers, u think they also calm down with CPI..
St Af
St Af Jun 10, 2021 1:32PM ET
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It's tuning in like 1987 !...Yes, I do.!
perplexed76 .
perplexed76 . Jun 10, 2021 12:34PM ET
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cpi jumped that's why rally is restrained
Tien Pham
Tien Pham Jun 10, 2021 2:47AM ET
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It's kind of stupid if you still get scared of the trick that've been repeatedly used to threaten you for months.
Kaveh Sun
Kaveh Sun Jun 10, 2021 2:07AM ET
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Watch the left media spins to justify China Biden bigly stimuluses. China Biden Keeps printing, that alone makes China great again.
Peter Bozich
Peter Bozich Jun 10, 2021 1:33AM ET
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Investors will soon realise that the FED is not able to fight inflation as raising rates even a tiny bit will crush the whole bubble economy. Gold will go ballistic once the realisation sets in
Kristof Naessens
Kristof Naessens Jun 10, 2021 1:33AM ET
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They won't even try to fight it, the debt needs to be inflated away. Just another form of taxation, i agree gold and silver are the place to go, especially with Basel III regulations coming in play end this month.
Anasi Lindfors
Anasi Lindfors Jun 10, 2021 1:33AM ET
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Yes just inflate it all away and then reset the fiat with digital money.. Just In time..
Frederick Chotsky
Chotsky Jun 09, 2021 10:26PM ET
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The data will be manipulated so that the Fed can keep rates low.
Kristof Naessens
Kristof Naessens Jun 09, 2021 10:26PM ET
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Yield Curve Control is already in place, they just haven't admitted to it yet. The Fed has only two tools. 1. Rise rates, but this is a no go because of the amount of debt, and 2. Print money, print more money...
Wayne Rollins
Wayne Rollins Jun 09, 2021 10:14PM ET
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no mention anywhere on this site of Biden Xi pushing trade forward
 
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