Shares rise, yields off slightly after U.S. inflation data

NEW YORK/MILAN, May 11 (Reuters) – The S&P 500 and the Dow were gaining ground on Wednesday and the dollar index declined after data showed U.S. inflation slowed on a year-on-year basis last month, giving investors some hope that price surges are peaking.

U.S. stock futures initially lost ground after core inflation, excluding items such as oil prices was higher than expected. But ultimately investors appeared encouraged by the annual consumer price growth change to 8.3% in April from 8.5% in March even though it was above the 8.1% analyst estimate. read more

Similarly while bond yields climbed immediately after the report in what Jim Paulsen, chief investment strategist at The Leuthold Group in Minneapolis called an emotional first reaction, they lost some ground as investors digested the news.

“At the end of the day we can get all excited about whether it’s a little higher or a little lower but clearly the year-on- year inflation rate rolled over and looks like it peaked in March. It seems to have turned the corner,” he said.

“The other good thing here is that bond yields had a knee jerk reaction but calmed down. Whatever you think about the inflation report today it appears that bond yields were already high enough and stocks were already low enough. That tells you they had both priced in for hot inflation.”

The Dow Jones Industrial Average (.DJI) rose 213.25 points, or 0.66%, to 32,373.99, the S&P 500 (.SPX) gained 18.18 points, or 0.45%, to 4,019.23 and the Nasdaq Composite (.IXIC) dropped 61.52 points, or 0.52%, to 11,676.15.

Nasdaq fell as interest rate sensitive growth sectors, technology (.SPLRCT) and consumer discretionary (.SPLRCD), reacted negatively to the inflation data. Paolo Zanghieri, senior economist at Generali Investments, said it confirmed that inflation’s return to more tolerable levels would take time.

“Overall today’s data add to the case of the strong front-loading called for by (Fed Chair Jerome) Powell in the last meeting, who also suggested the possibility of two more 50bps rise in June and July,” Zanghieri said.

“However, this will keep concern on the possibility of a recession high, and ultimately weakening growth may lead the Fed to temper it tightening after the summer.”

The pan-European STOXX 600 index (.STOXX) rose 1.54% and MSCI’s gauge of stocks across the globe (.MIWD00000PUS) gained 0.61%. On Tuesday, the global index had fallen to its lowest level since December 2020 on fears Fed tightening could significantly slow down the global economy.

While the dollar index gained ground initially after the inflation news it was last down 0.25%, with the euro up 0.19% to $1.0547. The Japanese yen strengthened 0.17% versus the greenback at 130.22 per dollar, while Sterling was last trading at $1.2329, up 0.06% on the day. read more

After falling to their lowest levels in almost a week earlier on Wednesday, benchmark 10-year Treasury yields initial reaction to the inflation data was to march back towards the three-year high of 3.203% hit on Monday.

Yields since lost some ground with Benchmark 10-year notes last up 5/32 in price to yield 2.9754% compared with…