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Peak inflation bet boosts stocks while the dollar declines

Image: Reuters Berita 24 English - The dollar struggled after suffering its largest decline in five months on Thursday as investors bet on t...

Image: Reuters

Berita 24 English - The dollar struggled after suffering its largest decline in five months on Thursday as investors bet on the rate of interest rate increases slowing down. Data indicated that inflation had peaked.

In search of direction, oil prices remained below $100 per barrel, while shares of Zurich rose thanks to the insurer's better-than-expected earnings.

According to data released on Wednesday, consumer prices in the United States remained steady in July compared to June, with a two-year rise in inflation being halted by a decline in gasoline costs.

Ahead of the opening of Wall Street, investors are currently focusing on US producer price data as well as the most recent unemployment claims figures.

Peaking inflation may result in less aggressive interest rate increases from the U.S. Federal Reserve when it meets in September, according to Michael Hewson, chief markets analyst at CMC Markets. Next month also sees meetings of the European Central Bank and the Bank of England.

Markets are moving too quickly, and the real question is not just whether inflation has peaked but also how much farther it may fall in the light of the current circumstances, according to Hewson.

The challenges with supply chains and gas prices that are currently present throughout Europe only indicate that prices will stabilise at a significantly higher mean rather than returning to 2%, according to Hewson.

The U.S. consumer pricing data came in softer than expected, which helped Wall Street and spread early trading enthusiasm across Asian exchanges and into Europe.

The 600 largest European companies in the STOXX index saw a 0.3% increase. The majority of 2021's 17% gain was erased by the MSCI all countries index, which increased by 0.11% but is still down approximately 14% for the year.

According to the World Federation of Exchanges, while the world economy struggles to recover from COVID-19 and deal with the effects of the war in Ukraine, $18 trillion, or 15%, has been wiped off global markets in the first half of 2022.

Following the collapse of the dollar due to the U.S. inflation statistics, the euro and Japanese yen increased.

In a note, ING stated, "We anticipate a Fed fighting higher core inflation would keep the dollar supported on falls, especially against the euro and yen."

More increases on Wall Street are expected, as seen by the 0.2% increase in S&P 500 futures and the 0.4% increase in Nasdaq futures.

Graphic at Core inflation appears to have peaked.

Next Stop: PPI

The S&P 500 increased by more than 2% overnight on Wall Street, while the Nasdaq Composite increased by 2.9%. Since its June low, the Nasdaq has already increased by more than 20%.

According to Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson Investors, "rising real yields, due to the Fed's commitment to fighting inflation, have been an enormous problem for valuations in 2022. Therefore, any dovishness is seen as positive by the stock market, particularly for the highest valued companies."

However, a crucial pillar supporting the U.S. dollar was undercut by the potentially more pessimistic outlook.

There is no question that American authorities will continue to tighten the monetary system until price pressures have completely subsided.

In an interview with the Financial Times, San Francisco Fed President Mary Daly cautioned that a half-percentage point rate increase in September was her benchmark and that it is far too early for the U.S. central bank to declare triumph in its fight against inflation.

U.S. Treasury yields were little lower at 2.7662%.

As traders turned their focus back to increased crude supply and weaker demand, oil prices started to decline. U.S. West Texas Intermediate crude prices dropped 0.09% to $91.83 and Brent crude futures dropped 0.13% to $97.27 per barrel.

A one-month high reached in the previous session was further eluded by spot gold, which declined 0.3% to $1,787 per ounce. [GOL/]

MSCI's largest index of Asia-Pacific shares outside of Japan rose 1.4% to the highest level in six weeks, helped by gains in Hong Kong of 1.8%, South Korea of 1.2%, and China's blue chips of 1.5%.

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