Global stocks and US futures extend their rally after inflation cools sharply

  • Global stocks and US futures extended their gains Thursday, after US inflation cooled sharply in July.
  • Headline inflation dropped to 8.5%, raising hopes the Federal Reserve will slow down on interest rate hikes.
  • However, Fed officials were quick to say inflation remains too high and they’re committed to stamping it out.

Global stocks and US futures rose Thursday after data showed US inflation cooled unexpectedly sharply in July, which raised hopes the Federal Reserve may slow its pace of interest rate hikes.

Futures on the S&P 500 were up 0.18% at 5.20 a.m. ET, after the stock index hit its highest level since May on Wednesday. Dow Jones futures were up 0.28%, while Nasdaq 100 futures added 0.08%, also pointing to gains at the open.

Elsewhere, Europe’s continent-wide Stoxx 600 index inched up 0.10% in morning trading. In Asia, most equity markets rose sharply overnight, with China’s CSI 300¬†jumping 2.04% and Hong Kong’s Hang Seng rallying 2.40%.

Investors were cheered by a bigger-than-expected fall in the US consumer price index, which showed the rate of price rises across the economy hit 8.5% in the year to July. That was below economists’ expectations and down sharply from June’s year-on-year inflation rate of 9.1%.

That gave some relief to a market focused on assessing whether red-hot inflation was becoming entrenched or nearing a peak, as a cooling could give the Fed reason to ease up on its aggressive monetary tightening.

However, policymakers were quick to say the central bank will keep hiking interest rates until inflation is firmly under control. Neel Kashkari, president of the Minneapolis Fed, and his Chicago counterpart Charles Evans joined San Francisco Fed boss Mary Daly in saying inflation remains too high.

“There’s good news on the month-to-month data that consumers and business are getting some relief, but inflation remains far too high and not near our price stability goal,” Daly told the Financial Times.¬†

“We don’t want to declare victory on inflation coming down. We’re not near done yet,” she said.

The market is now pricing in a 50 basis point rate hike, rather than the 75 basis points previously expected, at the Fed’s next policy meeting in September. Given that is several weeks away, it might be too early to decide, analysts cautioned.

“Given how narrow the weakness was in the July data, the Fed will need to see more decisive evidence of a sustained deceleration in inflation to decide whether to go 50bps or 75 at the September meeting,” said Deutsche Bank economist Justin Weidner.

Here’s how other major assets are moving:

  • The dollar index fell 0.25% to 104.94, following a sharp drop Wednesday.
  • The yield on the key 10-year US Treasury note was down a basis point to 2.769%, as traders dialed down their expectations of Fed rate hikes.
  • Walt Disney shares rose 7% in premarket after second-quarter earnings showed a bigger gain in streaming subscribers than expected. Rivian and Warby Parker are on the docket Thursday.
  • Brent crude oil was up 0.44% to $97.83 a barrel, while WTI crude added 0.49% to reach $92.40 after the IEA raised its oil demand growth forecast for 2022.
  • In cryptocurrencies, ethereum moved 10.7% higher over 24 hours to $1,883.82, according to CoinMarketCap data, after a a successful test of its switch to a “proof of stake” system.

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