Wall Street hit fresh record highs on a softer consumer inflation

The Wall Street indices, the Dow Jones, S&P 500, and the Nasdaq Composite hit a fresh record high on Wednesday, as the well-awaited U.S. CPI-consumer price inflation cooled more than expected in April, boosting hopes for sooner interest rate cuts by Fed, and sending U.S. dollar and Treasury yields sharply lower.

The CPI-consumer inflation data cooled more than expected in April following three months of upside surprises. It slowed to 0.3% in April from 0.4% in March, slower than the 0.4% pace economists had expected, taking the annual figure to 3.4%, down from a 3.5% pace. (Source: www.cnbc.com)

The Core CPI, which strips out volatile food and energy prices, rose 0.3% in April versus March levels, while the annual core CPI inflation rate eased to 3.6% from 3.8% in March.

The slowdown in consumer prices boosted hopes that the disinflation trend is back on track, easing worries of raising inflation in early 2024, fuelling trader’s hopes for 2 interest rate cuts by the Federal Reserve until the end of 2024.

Economists now see a 52.4% chance that the Federal Reserve will start cutting rates by 25 basis points in September, and another 38.9% chance of rate cut in December, according to the CME FedWatch Tool. (Source: www.cmegroup.com) 

In this context, the yield-sensitive mega-cap tech stocks rallied on the falling U.S. dollar and T-yields. Tech stocks including Google, Meta, Nvidia, and Apple led the broader market rally.

The Dow Jones Industrial Average rose 349 points, or 0.9% to 39,908, S&P 500 rose 1.2% higher, surpassing the 5,300 level for the first time ever, while the tech-heavy NASDAQ Composite rose 1.4% to 16,742.

On the forex sector, the U.S. dollar tumbled across the board as the cooling inflation ramped up bets on interest rate cuts. The inflation readings, which were followed by softer-than-expected retail sales data, pushed up hopes that inflation will ease in the coming months, giving the Fed more confidence to begin trimming rates, which is a bearish catalyst for the greenback.

The weaker dollar and bond yields pushed north major peers, with Euro advancing to nearly $1.09; the Pound Sterling gained to nearly $1.27, while the Japanese Yen rebounded to ¥154.

Bitcoin rallied back to the $66,000 level, benefiting from the improved risk sentiment and the weaker dollar.

Ethereum rose over the $3,020 mark on a risk-on mood, and Solana gained 10% to $163, leading a strong rally in the altcoin sector.