By Amanda Cooper
LONDON (Reuters) – Global shares jumped and the dollar fell on Wednesday, after data showed core U.S. inflation rose less than expected in December, raising the chances of a second rate cut this year, while investors cheered the first wave of quarterly earnings.
The Bureau of Labor Statistics said the consumer price index (CPI) rose at an annual rate of 2.9% in December, from November’s 2.7%, in line with expectations for 2.9%.
Core inflation, which excludes food and energy prices, rose by 3.2% below forecasts for an annual rise of 3.3%.
U.S. stock index futures soared 1.5-1.7%, having been up earlier by just 0.3%, while the dollar fell 0.5% against a basket of major currencies.
Adding to the upbeat tone for the stock market were bumper fourth-quarter results from the likes of JPMorgan, which reported its biggest annual profit on record on Wednesday, top asset manager BlackRock, which logged a record $11.6 billion in assets, and Goldman Sachs, which saw profit more than double in the final three months of 2024.
U.S. Treasury yields=RR>, which hit 14-month highs near 4.8% earlier this week, fell 8.6 basis points on the day to 4.704%.
“The core index rose a cooler-than-expected 3.2% year on year, the slowest pace since last August, and a sign of underlying inflationary pressures fading somewhat,” Pepperstone senior research strategist Michael Brown said.
“Taking a step back, the CPI figures don’t add particularly much to the broader discourse, instead, serving to re-affirm that underlying price pressures remain relatively stubborn, and that the path back towards the 2% inflation target will be a relatively turbulent one,” he said.
MORE RATE CUTS
Nonetheless, the futures market showed traders now expect close to 40 basis points in rate cuts from the Federal Reserve this year, from around 30 bps before the inflation data.
In Europe, London’s FTSE 100 was one of the best-performing major equity indexes, up 0.9%, as shares in rate-sensitive homebuilders rallied sharply after data earlier showed British inflation unexpectedly cooled in December.
This potentially also gives the Bank of England more room to cut interest rates this year, which in turn offered some support to the country’s battered government bonds, which have seen long-dated yields hit their highest in nearly 30 years this week.
Benchmark 10-year gilt yields fell 14 bps to 4.75%, while sterling itself was up 0.6% on the day at $1.223.
The euro rose 0.3% to $1.0303, while the Japanese yen remained the stand-out performer. The dollar fell by as much as 1% after the U.S. inflation data to 156.415.
The yen already got a lift overnight, as traders priced in a 70% chance the Bank of Japan will raise interest rates in January after Governor Kazuo Ueda said policy-makers would discuss such an option next week.
In commodities, oil prices rallied 0.5%, supported by the weaker dollar, to trade at $80.34 a barrel, while gold, which tends to perform well when bond yields fall, rose 0.3% to $2,687 an ounce.
(Reporting by Amanda Cooper; Editing by Kirsten Donovan)
