Stocks rise, dollar stumbles after U.S. inflation data

NEW YORK  – A gauge of global stocks climbed on Thursday while longer-dated U.S. Treasury yields and the dollar fell after a reading of consumer prices fed expectations the Federal Reserve may have leeway to scale back the size of future interest rate hikes.

U.S consumer prices fell in December for the first time in more than 2-1/2 years as prices fell for gasoline and other goods, suggesting inflation was on a sustained downward trend.

Still, a separate reading on the labor market showed weekly initial jobless claims came in at 205,000, below expectations of 215,000. Many market participants are looking for signs of weakness in the labor market as a signal of slowing inflation.

On Wall Street, equities were choppy after the data, with the S&P 500 falling as much as 0.8 percent and then rebounding. Friday will bring results from a number of big U.S. banks, kicking off the fourth-quarter earnings season for S&P 500 companies.

The Dow Jones Industrial Average rose 216.96 points, or 0.64 percent, to 34,189.97, the S&P 500 gained 13.56 points, or 0.34 percent, to 3,983.17 and the Nasdaq Composite added 69.43 points, or 0.64 percent, to 11,001.11.

The pan-European STOXX 600 index rose 0.63 percent, closing at its highest level since April 29, and MSCI’s gauge of stocks across the globe gained 0.80 percent to notch a fifth straight session of gains, its longest streak since August.

Expectations for a 50 basis point rate hike at the next Federal Reserve meeting fell to 3.8 percent according to CME’s FedWatch Tool, down from 23.3 percent the day prior. The market is pricing in a 96.2 percent chance of a 25-basis point hike, up from 76.7 percent on Wednesday.

The benchmark U.S. 10-year notes were down 12.9 basis points to 3.427 percent, from 3.556 percent late on Wednesday.

St. Louis Fed President James Bullard said the inflation data was a step in the right direction and the U.S. economy was primed for disinflation this year, but the road back to the central bank’s 2 percent target would be bumpy. Richmond Federal Reserve president Tom Barkin echoed the sentiment about the data and said it allowed the Fed to “steer more deliberately”.

The dollar index hit its lowest level since early June at 102.07 before slightly paring losses, and was last down 0.873 percent, with the euro up 0.89 percent to $1.0851.

The Japanese yen strengthened 2.56 percent versus the greenback at 129.18 per dollar, while Sterling was last trading at $1.2215, up 0.60 percent on the day.

Crude prices rose in the wake of the data, getting an additional boost from optimism over China’s emergence from its COVID-19 restrictions creating additional demand.

U.S. crude settled up 1.27 percent at $$78.39 per barrel and Brent settled at $$84.03, up 1.65 percent on the day.