Wall Street stocks boosted by further signs of fading inflation

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US stocks and government bond prices rose on Thursday after data provided further signs that inflation in the world’s largest economy is cooling.

Wall Street’s benchmark S&P 500 index rose 0.7 per cent by mid-afternoon in New York, building on gains that carried it to a 15-month high in the previous session. The tech-dominated Nasdaq Composite added 1.4 per cent.

The moves followed data showing the producer price index, which tracks the prices businesses receive for their goods and services, rose less than expected in June.

It was the second encouraging US inflation report in as many days, with figures on Wednesday showing that consumer price rises were also lower than forecast.

Separate jobs data, however, highlighted that the labour market — a crucial driver of inflation — remains tight, with jobless claims falling by 12,000 to 237,000 in the week to July 8.

Consumer price inflation hit a high of more than 9 per cent last summer, and the Federal Reserve has been aggressively raising rates to bring it back towards the central bank’s 2 per cent target.

The Fed is still expected to lift rates by 0.25 percentage points at its next policy meeting at the end of July, but the recent inflation data led investors to scale back their bets on further increases later in the year.

“We, and increasingly the market, doubt that the Fed will hike again after the July 26 meeting,” said Steve Englander, head of G10 FX research at Standard Chartered.

Futures markets are now pricing in about a one-in-three chance of an additional rate rise in the autumn, compared with one in two before the CPI release.

The yield on the two-year Treasury note, which is particularly sensitive to interest rate expectations, fell 0.12 percentage points to 4.62 per cent. The benchmark 10-year yield fell 0.09 percentage points to 3.77 per cent. Lower yields reflect higher prices.

Lower interest rate expectations also weighed on the dollar. The dollar index, which measures the buck against a basket of peers, fell 0.7 per cent. Sterling made particularly strong gains after data showed the UK economy contracted by less than expected in May, adding 1.1 per cent to hit a 16-month high of $1.3122.

Preston Caldwell, chief US economist at Morningstar, said inflation was now showing “broad-based signs of deceleration”, supporting his view that the Fed would begin “aggressive” rate-cutting next year.

Europe’s region-wide Stoxx 600 added 0.6 per cent, consolidating a 1.5 per cent rise — the most since early June — in the previous session. France’s Cac 40 added 0.5 per cent, while Germany’s Dax rose 0.7 per cent.

Asian markets rose even though China’s exports and imports both shrank faster than expected in June. China’s CSI 300 gained 1.4 per cent, South Korea’s Kospi added 0.5 per cent, while Japan’s Topix rose 1 per cent.

Hong Kong’s Hang Seng index added 2.6 per cent, while the Hang Seng Tech index rallied 3.6 per cent after government officials signalled their support for the tech sector.