Stocks around 2023 highs as disinflation signal brings some relief

Global stocks traded around their highs for the year on Thursday as investors bet that the Federal Reserve was finally taming inflation and could end its rate hiking cycle as soon as this month.

US data on Wednesday showed consumer prices rose modestly in June, registering the smallest annual increase in more than two years as the economy shifted into disinflation mode, helping to send oil prices higher.

But the prospect of an end to rising borrowing costs, in the United States at least, kept downward pressure on the dollar , which fell to its lowest in more than a year against the euro on Wednesday on the US inflation news.

Interest rate futures showed markets have fully priced in another rate hike from the Federal Open Market Committee (FOMC) later this month, but expectations of any further increases have faded.

The softer dollar helped gold prices advance to near one-month highs.

The MSCI All Country stock index (.MIWD00000PUS) was up 0.4 per cent at 691 points, around the highs for the year, to gain 13.5 per cent so far in 2023, though still not wiping out all of the near 20 per cent loss in 2022.

Stocks and bonds in Asia on rallied in response to the US inflation news, while in Europe, the STOXX index added to Wednesday’s gains, up 0.4 per cent, bringing its advance for the year to 8 per cent.

Eren Osman, managing director of wealth management at Arbuthnot Latham & Co, said the US inflation news was encouraging, though markets will be scrutinising the US jobs data later on Thursday for signs of continued softening to underpin the disinflation story.

“Let’s give it a little cheer, but I wouldn’t start to extrapolate that to mean job done and no more hikes,” Osman said.

“There is at least one more hike coming out of the Fed, but I do think it means investors should feel very comfortable about looking to add duration to their portfolios now, and that is something we are looking to do ourselves, The risk is really to the downside here from yields,” Osman said.

Stocks, however, may have seen the best part of this year already and face headwinds from pressure on consumers and on jobs, he added.

S&P 500 futures and Nasdaq futures were firmer.

DISMAL CHINA DATA

Investors in Asia shook off dismal China trade data, which showed both exports and imports contracted at a worse-than-expected pace last month, betting that the latest bad news will trigger more stimulus measures.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) surged 1.9 per cent, bolstered by a 2.6 per cent jump in Hong Kong’s Hang Seng index (.HSI) and a 1.6 per cent gain in Australia’s resources-heavy shares (.AXJO).

Japan’s Nikkei (.N225) rose 1.5 per cent.

Chinese tech giants listed in Hong Kong (.HSTECH) rallied 3.8 per cent after Premier Li Qiang urged the companies to support a slowing economy, adding to signs that a years-long crackdown on the sector is over.

Bonds heaved a sigh of relief after a rout last week sent global yields sharply higher. The 10-year Treasury yield eased to 3.8103 per cent, having dived 12 bps (bps) overnight and down from a seven-month top of 4.0940 per cent on Friday.

Rate-sensitive two-year yields slipped to 4.6408, after plunging 15 bps overnight. That led to a steepening in the yield curve.

The Japanese yen, which had come under massive selling pressure due to Japan’s ultra easy monetary stance, gained more than 6 yen on the dollar in nine sessions and was last at 138.41 per dollar.

Oil prices traded near the highest in two months on a soft US dollar. Brent crude futures rose 0.45 per cent to $80.47 per barrel and US West Texas Intermediate crude futures were up 0.3 per cent at $76.01.

Gold prices were up 0.16 per cent at $1,960.29 per ounce.