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GLOBAL MARKETS-Stocks rally, dollar stable after jump in U.S. CPI data

Credit: REUTERS/BRENDAN MCDERMID

Global stocks surged and bond yields were subdued on Thursday after a jump in U.S. inflation was seen as not enough to change the Federal Reserve's view that rising consumer prices will be transitory or alter its easy monetary policy.

By Herbert Lash and Simon Jessop

NEW YORK/LONDON, June 10 (Reuters) - Global stocks surged and bond yields were subdued on Thursday after a jump in U.S. inflation was seen as not enough to change the Federal Reserve's view that rising consumer prices will be transitory or alter its easy monetary policy.

MSCI's benchmark, the S&P 500 and a key European index surged to record highs after the U.S. Labor Department said the consumer price index in the 12 months ended in May accelerated 5.0%, the biggest year-on-year increase since August 2008.

In a sign of market complacency, the 10-year U.S. Treasury US10YT=RR note's yield fell 1.2 basis points to 1.4772% after earlier rising above 1.5% following the data's release. The dollar index =USD traded little changed.

The initial sell-off in bonds was muted as for the most part the CPI report was in line with expectations, said Subadra Rajappa, head Of U.S. rates strategy at Societe Generale in New York.

"The market is really buying into the narrative that the rise in inflation is in fact transient because you're not seeing that necessarily being priced into fears in the bond market," Rajappa said.

Many investors believe economic growth will soon slow, perhaps significantly, and trump any acceleration in inflation, which will still be temporary, said Joseph LaVorgna, chief economist for the Americas at Natixis in New York.

"If it turns out the economy is weaker in the next three to six months than people think, it won't even matter if inflation continues to surprise to the upside," LaVorgna said.

"The (equity) market is going to ignore the data. It's going to rally regardless," he said.

MSCI's all-country world index .MIWD00000PUS rose 0.35% to 718.05 after climbing past its previous record of 718.19 set Tuesday, and the pan-European STOXX 600 .STOXX closed up 0.1% at 454.83 after earlier scaling a new peak.

On Wall Street, the Dow Jones Industrial Average .DJI rose 0.35%, the S&P 500 .SPX gained 0.45% and the Nasdaq Composite .IXIC added 0.49%.

Risk assets have remain buoyant as central bankers on both sides of the Atlantic signal their willingness to keep the monetary taps open until the post-pandemic recovery takes hold, believing inflationary pressures to be short-lived.

A surprisingly strong U.S. inflation print in April spooked investors, sparking a cautious run into Thursday's of May data.

The European Central Bank raised its growth and inflation views but promised to keep ample stimulus flowing, fearing that a retreat now would accelerate a worrisome rise in borrowing costs and choke off recovery.

The dollar index =USD fell 0.064%, with the euro EUR= down 0.05% to $1.2172. The Japanese yen strengthened 0.13% versus the greenback at 109.48 per dollar.

Overnight, fixed income markets were the big movers, with some analysts pointing to a setback to more U.S. stimulus efforts, while others suggested a likely clearing out of short positions in U.S. government bonds ahead of the May CPI.

Short positions in Treasuries were the highest since 2018, according to JP Morgan positioning data last week.

Asia stock marketshttps://tmsnrt.rs/2zpUAr4

Asia-Pacific valuationshttps://tmsnrt.rs/2Dr2BQA

(Additonal reporting by Swati Pandey in Sydney and Thyagu Adinarayan in London; Editing by Ana Nicolaci da Costa, Christopher Cushing, Angus MacSwan, Catherine Evans and Jane Merriman)

((simon.jessop@thomsonreuters.com; +44 (0) 207 542 5052; Reuters Messaging: Reuters Messaging: simon.jessop.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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