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World stocks and government bonds rallied on Wednesday after data showing headline US inflation eased last month slightly tempered expectations for another rate hike from the Federal Reserve.
US stock futures pointed to a positive open for Wall Street shares, while the dollar fell against other major currencies after data showed the U.S. consumer price index rose 5% -- the smallest year-on-year gain since May 2021.
Money markets trimmed expectations for a May Fed rate hike, pricing in a roughly 67% chance of a move, versus around 75% just before the data, reported Reuters.
With core CPI, excluding volatile food and energy components, rising 5.6% after a 5.5% rise in February, markets were still leaving towards further tightening.
“Most of these numbers either came in on target or slightly better. The markets are looking at the combined reports as a net positive overall,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab.
The inflation data came on the heels of last Friday’s employment report, which showed a solid pace of job growth in March and the unemployment rate falling back to 3.5%.
In Europe, stock markets rose after the U.S. data and the broad STOXX 600 index was last up 0.5% (.STOXX) and holding near one-month highs.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was 0.2% lower in choppy trading, snapping a three-day winning streak.
US bonds yields fell after the CPI numbers. Rate-sensitive two-year Treasury yields were last down 12 basis points at 3.93% , while US 10-year yields fell 6 bps to 3.37%.
The dollar fell with an index measuring the U.S. currency against six rivals down 0.4% at 101.72. The euro was up 0.5% at $1.0965, while sterling was at $1.24525, up 0.2% on the day.
The dollar was also down 0.5% to 133.04 yen.
Overnight, Philadelphia Federal Reserve Bank President Patrick Harker said he feels the U.S. central bank may soon be done raising interest rates, but reiterated the desire to bring inflation back to its 2% target.
The Fed last month raised interest rates by a quarter of a percentage point, taking it to a range of 4.75% to 5.00%.
Minutes of the Fed’s March meeting are also due to be released later in the day and investors will parse it for clues on the monetary path of the central bank, as well as the impact of the stress in the banking sector.
