US stocks rise after report shows pick-up in inflation

US stocks rise after report shows pick-up in inflation

Wall Street stock markets were on track for their strongest week since February as investors assessed fresh data showing the US’s inflation rate quickened last month to its highest level since 1982.

The blue-chip S&P 500 index rose 0.6 per cent, taking its weekly gain to 3.5 per cent. The technology-focused Nasdaq Composite edged up 0.4 per cent, also on course for a weekly rise in excess of 3 per cent.

The labour department said on Friday that US consumer prices climbed 6.8 per cent in November from the same month in 2020, matching economists’ forecasts. But the monthly increase was 0.8 per cent, down from 0.9 per cent in October.

“The market was expecting this inflation reading and high inflation has been priced into markets for many months now,” said George Ball, chair of investment group Sanders Morris Harris.

Many investors also expect price increases to peak soon, as supply chain glitches — caused by coronavirus shutdowns and a rebound in energy markets from the depths of 2020’s economic slowdown — ease.

November’s inflation report showed fuel prices rose 3.5 per cent over the month, down from 4.8 per cent between September and October. The monthly rate of price gains for used cars and shelter was steady.

“The bond market is telling us inflation is not going to run out of control for long,” said Guillaume Paillat, multi-asset portfolio manager at Aviva Investors.

The yield on the benchmark 10-year Treasury note dipped 0.02 percentage points to 1.47 per cent after the inflation data. The five-year five-year inflation swap rate, a measure of longer-term expectations of price rises, was flat at just under 2.5 per cent.

The yield on the two-year US Treasury note, which moves inversely to the price of the government debt instrument and tracks monetary policy expectations, edged down 0.02 percentage points to 0.66 per cent.

Fed chair Jay Powell has given a strong signal that the US central bank, which holds its next monetary policy meeting next week, could rapidly wind down its $120bn-a-month of bond purchases that have lowered borrowing costs and boosted stock market sentiment through the pandemic era.

This could be completed by March, in a precursor to the world’s most influential central bank raising interest rates from their current record low, leading economists surveyed for the Financial Times have said.

“If the Fed does not pull back some of its support now and start to normalise monetary policy, they’ll have very little ammunition when we do get into the next recession,” said Paul Jackson, head of asset allocation research at fund manager Invesco.

“But I suspect US inflation is just about peaking out now.”

Christophe Donay, head of asset allocation at Pictet, predicted that the US central bank would reverse any future rate rises if the new Omicron coronavirus variant or other similar outbreaks began to curtail economic growth.

“When risks are rising, markets consider the Fed will slow down its tightening.”

In Asia, Hong Kong’s Hang Seng index dropped 1.1 per cent, mirroring falls on Wall Street in the previous session. The Nikkei 225 in Tokyo closed 1 per cent lower. A FTSE index of emerging market stocks fell 0.6 per cent.

The dollar index, which tracks the performance of the US currency against six others, was flat. Sterling was steady against the dollar, buying just over $1.32.

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