Stocks pare rally as risk-on mood after consumer price index cools

Bloomberg

Stocks trimmed a rally on Thursday spurred by softer-than-expected US inflation data as investors digested comments from Federal Reserve officials who remained resolute on the need for further interest-rate
increases.
Europe’s Stoxx 600 Index surrendered an initial advance. US futures pared gains, after the S&P 500 hit a three-month high and the Nasdaq 100 pulled 20% above a June low on Wednesday. Walt Disney Co. rallied in premarket after a strong performance by its streaming service. Bumble Inc. slid after the dating app company cut its revenue forecast.
US headline inflation was 8.5% in July, down from the 9.1% June print that was the largest in four decades. Price pressures are still intense and Fed officials were quick to stress more rate increases are coming. They also signalled investors should rethink expectations of cuts next year to shore up economic growth.
“The Fed is still very clearly on a tightening path,” Sonja Marten, chief currency strategist at DZ Bank AG, said on Bloomberg Television. “Inflation might have come down slightly, but it’s still at 8.5%, which is still very high with a very tight labour market. There is no reason for the Fed to slow down now.”
A dollar index slipped, adding to retreat a day earlier that was the biggest since the onset of the pandemic. Short-term Treasury yields held a drop on investors’ scaled-back expectations of how aggressively the Fed will have to tighten monetary policy.
Crude oil extended gains as the International Energy Agency boosted its forecast for global demand growth this year as soaring natural gas prices and heat waves spur industry and power generators to switch their fuel to oil. Bitcoin broke past $24,000 in a sign of the brighter sentiment in markets.
Minneapolis Fed President Neel Kashkari said he wants the Fed’s benchmark interest rate at 3.9% by the end of this year and at 4.4% by the end of 2023.
Alluding to market pricing of the Fed’s policy path, Kashkari said it was not realistic to conclude that the Fed will start cutting rates early next year, when inflation is very likely to be well in excess of the 2% goal.
Chicago counterpart Charles Evans said inflation remains “unacceptably high” and that “we will be increasing rates the rest of this year and into next year.”
Swaps referencing the Fed’s September meeting brought a half-point rate increase back into play as opposed to a bigger move. A key portion of the Treasury yield curve remains deeply inverted, a pattern widely thought to signal the risk of a recession.
Futures on the S&P 500 rise 0.3% as of 6:14 am New York time and futures on the Nasdaq 100 also climb 0.2%.
While futures on the Dow Jones Industrial Average gain 0.4%, the Stoxx Europe 600 was little changed and the MSCI World index rises 0.2%.
The Bloomberg Dollar Spot Index falls 0.2% and the euro rises 0.4% to $1.0337.
While the British pound was little changed at $1.2212, the Japanese yen climbs 0.2% to 132.63 per dollar.
The yield on 10-year Treasuries declined two basis points to 2.76% and Germany’s 10-year yield advanced two basis points to 0.91%. Britain’s 10-year yield advanced four basis points to 1.99%.
West Texas Intermediate crude surges 0.9% to $92.75 a barrel and gold futures fall 0.5% to $1,805.10 an ounce.