By Sinead Carew
(Reuters) – Stock indexes rose while the dollar index fell on Tuesday after data showed US inflation slowed in January but still rose faster than expected, raising questions about when the Federal Reserve will start tightening monetary policy can interrupt.
MSCI’s all-country index jumped to a session high right after the report was published, before falling sharply and rebounding after the US market opened. The S&P 500 benchmark started the session significantly lower but recovered sharply shortly after the open.
After struggling to find direction following the report, US Treasury yields soon rose and remained above Monday’s close.
The dollar index was also lower in volatile trading.
The consumer price index rose 6.4% in the 12 months to January, marking the smallest annual increase since the end of 2021, but faster than economists had expected of 6.2%.
On a monthly basis, consumer prices rose 0.5% in January after rising 0.1% in December, the Labor Department said on Tuesday.
“The topline and core were higher than consensus, but on a year-over-year basis both core and topline are still on a lower course – just less than expected. It still suggests headline inflation is moving lower,” said Peter Cardillo, chief market economist at Spartan Capital Securities, New York.
While some investors were harboring hopes that the Fed might pause rate hikes after the next meeting, inflation readings implied otherwise.
“I don’t think (this report) is moving the needle for the Fed and I suspect they are looking closely at the data. Does that mean we’re headed for at least two more rate hikes? Absolutely. My guess is that the year-over-year decline in topline and core (CPI) points to another 25 basis point increase in March and another in May,” Cardillo said.
Futures tied to the Fed’s interest rate showed bets that the US Federal Reserve will hike rates at least twice more, with contract prices showing traders betting heavily on a quarter-point rate hike in both March and May.
The Dow Jones Industrial Average was up 56.11 points, or 0.16%, to 34,302.04, the S&P 500 was up 18.22 points, or 0.44%, to 4,155.51 and the Nasdaq Composite was up 89.25 points, or 0.75% to 11,981.04.
The pan-European STOXX 600 index rose 0.60% and MSCI scores for global equities rose 0.58%. Emerging market equities rose 0.28%.
In currencies, the dollar index, which measures the greenback against a basket of major currencies, fell 0.262%, while the euro rose 0.39% to $1.0762.
The Japanese yen weakened 0.08% against the greenback to 132.50 per dollar, while sterling last traded at $1.2214, up 0.65% on the day.
In Treasuries, the benchmark 10-year bond was up 0.7 basis points to 3.726% from 3.719% late Monday. The 30-year bond was last down 2.5 basis points to 3.7674% from 3.792%. The two-year bond was last up 5 basis points from 4.534% to 4.5836%.
Oil prices fell after the US government announced it would release more crude from its strategic petroleum reserve and continued to fall following US inflation data.
US crude was recently down 1.17% at $79.20 a barrel and Brent was at $85.73, down 1.02% on the day.
Spot gold rose 0.6% to $1,865.34 an ounce. US gold futures fell 0.31% to $1,846.20 an ounce.
(Reporting by Sinéad Carew, Stephen Culp, Stella Qiu, Susan Mathew, and Amanda Cooper; Editing by Sam Holmes, Sharon Singleton, Chizu Nomiyama, and Christina Fincher)
