Wall Street stocks climb as data points to easing price pressures

The producer price index in the US has increased by a lower margin than expected. This provides encouragement that the Federal Reserve will not increase interest rates.

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On Wednesday, new information showed that inflation in the US is decreasing, which made investors more confident that the Federal Reserve won't increase interest rates. This caused the stock market on Wall Street to have a strong performance, while the dollar's value decreased.

The S&P 500 index increased by 0.3 percent, continuing its upward trend from the previous session. Additionally, the Nasdaq Composite, which features mostly technology companies, went up by 0.4 percent.

The actions were taken following an increase of 1.1% in the US producer price index compared to the previous year in May. This was lower than the general agreement prediction and lower than the increase of 2.3% recorded in the previous month.

Blanke Schein Wealth Management's Chief Investment Officer, Robert Schein, stated that the recent PPI report on Wednesday shows that the rate of inflation is still decreasing. This puts an increased amount of pressure on the Federal Reserve to halt its plans to raise interest rates.

Market analysts estimated with 92% certainty, according to data collected by Refinitiv using interest rate derivatives prices, that the Federal Reserve would maintain its current interest rates during its monetary policy meeting scheduled for Wednesday.

When investors anticipate lower rates, the dollar experiences a decline. It dropped by 0.6% against six other global currencies, resulting in its lowest value in a span of four weeks.

Solita Marcelli, the chief investment officer for the Americas at UBS Global Wealth Management, stated that they anticipate the Fed to maintain its current rates in accordance with the market's predictions. However, they also believe that the policymakers will communicate a distinct message that there will be an additional rate increase in the future meeting.

The US consumer price data, which was released a day ago, presented a decrease in headline inflation. Comparing year-on-year figures, the inflation rate went from nearly 5 per cent in April to 4 per cent in May.

According to Mohit Kumar, who is the chief Europe financial economist at Jefferies, the Fed is looking to take a break and would require a substantial justification to modify their perspective. He observed that the inflation report failed to offer sufficient grounds for any change in their stance.

The US two-year Treasury's output, which is highly influenced by changes in monetary policies, reduced by 0.07 percentage points, down to 4.62%. Similarly, the yield of the 10-year bond decreased by 0.05 percentage points, reaching 3.78%. When the price of bonds increases, their yields decrease.

At the same time, the Stoxx 600, which covers various European countries, and the Dax, which is specific to Germany, both experienced a 0.5 percent increase.

The pound rose significantly against the dollar due to the robust economic performance of the UK, as evident from the recent GDP and employment figures. This has increased the likelihood of the Bank of England continuing to hike interest rates. As per Refinitiv data, the sterling strengthened by 0.6%, reaching a level it hasn't seen since April 2022.

The stock markets in Asia had different directions. The Topix index in Japan increased by 1.3 percent, while the CSI 300 index in China did not show much change. On the other hand, the Hang Seng index in Hong Kong decreased by 0.6 percent.

Earlier, there was an increase in China's shares due to the belief that the People's Bank of China may offer policy assistance. This was because the central bank lowered its short-term lending rate, which it had not done for nine months.

Experts from Goldman Sachs have claimed that this action implies that China may undergo further monetary policy easing. They predict that the People's Bank of China will reduce its one-year medium-term lending facility rate by 0.1 percentage points on Thursday, which sets the minimum level for the country's benchmark prime loan rate.