Cooler inflation, bank profits reignite global markets
A ceasefire in Gaza capped gains in oil prices.
Markets on both sides of the Atlantic kicked back into life after US and UK inflation readings revived optimism interest rates will continue to come down this year, while surging bank profits set the scene for a strong earnings season.
The S&P 500 was up 1.6% at 7am in Auckland, while the UK’s FTSE 100 climbed 1.2% and Germany’s DAX advanced 1.5% after US consumer prices rose less than expected in December, reviving hopes the Federal Reserve will cut its key interest rate more than once this year.
A tame UK inflation reading added to the optimism, with government bond yields coming down from their elevated levels. The yield on 10-year UK gilts dropped 16 basis points to 4.73% while US 10-year Treasuries were down 13 points at 4.67%.
“The market-friendly release drove lower rates, stronger equities and a weaker US dollar, although the latter fully unwound,” Bank of New Zealand senior markets strategist Jason Wong said in a note. “The data are consistent with the market’s view that the Fed can take an extended pause on the rate cutting cycle, while the slightly weaker core measures reduce the risk that the Fed might have to reverse course and tighten policy later in the year, a narrative that was starting to pepper commentaries to fit the recent bond market sell-off.”
The kiwi wasn’t much of a beneficiary from the weaker greenback, trading at 56.13 US cents at 7am from 56.06 cents yesterday. The local currency fell to 90.24 Australian cents from 90.51 cents.
Black gold
Meanwhile, Brent crude oil prices were capped – up 1.9% at US$81.41 at 7am – as the breaking news of a ceasefire between Israel and Hamas slowed earlier increases on a report showing US crude oil inventories at their lowest level since 2022.
Banks were among the bigger gainers on Wall Street as the December quarter earnings season kicked off, with JPMorgan Chase, Wells Fargo, and Goldman Sachs delivering strong results while Citigroup was back in the black. Blackrock also beat expectations and ended the quarter with a record US$11.6 trillion of assets under management.
Those financial institutions are optimistic about the incoming US administration’s looser regulatory approach, with a swelling appetite for capital driving increased deal activity and companies’ need for finance.
Local data today include partial inflation reading for the December quarter.
Reporting by Paul McBeth. Image from Erol Ahmed on Unsplash.
