Global equity and government bond prices rose for the second straight year on Wednesday as investors reviewed data showing US inflation at its highest level in nearly 40 years to focus on expectations that price hikes are coming soon would peak.
Wall Street’s blue-chip S&P 500 rose 0.1 percent in afternoon trading in New York, while the tech-heavy Nasdaq Composite climbed 0.2 percent.
US equity markets, technology stocks in particular, got off to a poor start to the year amid concerns over the impact of high inflation and rising interest rates.
The data released on Wednesday morning showed that consumer prices rose 7 percent in December from a year earlier. However, the news had little impact on investors, who were reassured by comments from Federal Reserve Chairman Jay Powell earlier this week.
Powell told the U.S. Senate Banking Committee on Tuesday that the central bank would tackle high inflation and predicts the supply chain bottlenecks caused by pandemic disruptions will ease this year.
“We continue to expect a significant slowdown in the coming year as the reopening and fiscal incentives wane and the Covid-related supply restrictions eventually wane,” TD Securities’ strategists wrote in a statement to customers. “But right now the data is pretty strong.”
The yield on the 10-year government bond, which falls when prices rise, fell 0.01 percentage points to 1.73 percent.
After Wednesday’s inflation report, traders continued to bet that the Fed would hike rates three or four times this year to around 1 percent.
These calculations are implied by the swap markets and are based on the widely held belief that the current high rates of inflation will ease as the global supply chain bottlenecks caused by the economic disruptions from the coronavirus lockdowns resolve. They have been called supportive of the stock markets by investors.
Despite a tumultuous start to the year, with the S&P 500 index falling five out of seven sessions and the Nasdaq Composite briefly entering a correction, the S&P was trading just 1.7 percent below its all-time high on Wednesday.
“Yes, there is a cancellation of accommodation,” said Tim Graf, macro strategist at State Street, ahead of the inflation data. “But does that make a significant difference in the financing environment for households and companies? We don’t seriously think so. “
The increased optimism in the USA was followed by similarly positive trade in Europe and Asia. The Europe-wide Stoxx 600 share index rose by 0.6 percent, the London FTSE 100 by 0.8 percent. Hong Kong’s Hang Seng index closed 2.8 percent higher, with the technology sub-index posting its biggest daily gain since October.
The dollar index, which measures the US currency against a basket of competitors, lost 0.7 percent.