US stocks rise after report shows rebound in inflation

Wall Street stock markets were on track for their strongest week since February as investors assessed new data showing inflation in the United States rose last month to its highest level since 1982.

The blue-chip S&P 500 Index rose 0.5%, bringing its weekly gain to 3.4%. The tech-focused Nasdaq Composite edged up 0.3%, also on track for a weekly gain of over 3%.

The Labor Department said on Friday that consumer prices in the United States rose 6.8% in November from the same month in 2020, matching economists’ forecasts and the largest increase in 39 years. But the monthly increase was 0.8 percent, down from 0.9 percent in October.

“The market has been expecting this inflation reading and high inflation has been built into the markets for many months now,” said George Ball, chairman of the Sanders Morris Harris investment group.

Many investors also expect price increases to peak soon, as supply chain problems – caused by coronavirus shutdowns and a rebound in energy markets from the depths of the downturn economic 2020 – weaken.

The November inflation report showed that fuel prices rose 3.5% during the month, compared to 4.8% between September and October. The monthly rate of increase in prices for used cars and car shelters remained stable.

“The bond market tells us that inflation is not going to stay out of control for long,” said Guillaume Paillat, multi-asset portfolio manager at Aviva Investors.

The benchmark 10-year Treasury bill yield edged down 0.02 percentage point to 1.47 percent after the inflation data. The five-year and five-year inflation swap rate, a measure of longer-term price expectations, held steady at just under 2.5%.

The yield on the two-year US Treasury bill, which moves inversely to the price of the government debt instrument and follows monetary policy expectations, fell 0.04 percentage point to 0.65%.

Fed Chairman Jay Powell has given a strong signal that the US central bank, which holds its next monetary policy meeting next week, could quickly end its $ 120 billion bond purchases by months that have reduced borrowing costs and boosted stock market sentiment thanks to the pandemic era.

That could be completed by March, the precursor to the world’s most influential central bank interest rate hike, top economists interviewed for the Financial Times said.

“If the Fed doesn’t pull some of its support now and start normalizing its monetary policy, it will have very little ammunition when we enter the next recession,” said Paul Jackson, head of research. on asset allocation at fund manager Invesco. .

“But I suspect US inflation is about to peak now.”

Christophe Donay, head of asset allocation at Pictet Wealth Management, predicted that the US central bank would reverse any future rate hikes if the new variant of the Omicron coronavirus or other similar outbreaks started to dampen economic growth.

“When risks increase, markets consider the Fed to slow down its tightening.”

In Europe, the Stoxx 600 regional stock index closed 0.3% lower. UK gauge FTSE 100 closed 0.4% lower.

Hong Kong’s Hang Seng Index fell 1.1%. The Nikkei 225 in Tokyo closed down 1%.

In currencies, the dollar index, which tracks the performance of the greenback against six others, fell 0.2%.

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