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Nasdaq recovers more than 20% from recent lows after US inflation eases

U.S. stocks rallied on Wednesday, with the tech-heavy Nasdaq Composite closing more than a fifth from its low hit earlier this year, after new data showed inflation stabilizing in the economy. largest economy in the world.

Client prices in the US increased by 8.5% year-over-year in July, growth was slower than June and below economists’ forecasts of 8.7%. Data released on Wednesday also showed that on a monthly basis, there was no increase in inflation in July compared with a 1.3% monthly increase in June.

The data added impetus to a two-month recovery in financial markets, as traders bet the Federal Reserve could lead to curbs on aggressive interest rate hikes in a bid to reduce prices are skyrocketing.

Line chart August 10, 2022 (%) showing US stocks rebound as inflation data falls short of expectations

The Nasdaq Composite, which includes big tech companies like Apple and Microsoft, rose 2.9% on Wednesday, bringing its gain to 20.7% from the low hit in June. The fast-growing businesses in the index have been hit hard this year as investors slashed their global growth forecasts and Treasury yields surged.

The S&P 500 blue-chip stock index rose 2.1% to close above 4,200 for the first time since early May. The benchmark is up 14.8% from nadir in 2022, though total U.S. reserves are still worth about $8.6 billion less than they were at the start of the year.

Combined market valuation line chart of publicly traded US companies ($trillion) shows the Rally has added more than  billion to the value of US equities from June lows

Indices of volatility, which have been elevated since Russia’s invasion of Ukraine and the possibility of a rising US recession starting to rattle investors, have also fallen. The Vix Index of expected stock market volatility fell below its long-term average of 20 for the first time since April.

Asian shares largely followed Wall Street higher on Thursday, with Hong Kong’s benchmark Hang Seng index up about 1%, while China’s CSI 300 index gained 0.5%. Japan’s Topix fell 0.2%.

“Inflation has been forecast to peak in the summer for some time, so markets can rest assured that there are clear signs,” said Oliver Blackbourn, portfolio manager at Janus Henderson Investors. shows this is happening.”

Prices for two-year US Treasuries, which are particularly sensitive to changes in the Fed’s interest rate policy, also rose after the inflation report.

The rise pushed yields on bonds down 0.05 percentage points to 3.22%. Yields on the benchmark 10-year Treasury note, changed by inflation and growth expectations, rose 0.01 percentage points to 2.79 percent.

The US dollar, a haven for investors in times of uncertainty, also fell back in response to the data, falling 1.1% against a basket of six currencies.

The US inflation benchmark has reached 9.1% in June – a 40-year high – prompts the Fed to deliver a consecutive super-favorite rate hike to 0.75 percentage points over the summer.

However, inflation data shows prices are still well above the US central bank’s 2% target.

Mike Bell, global market strategist at JPMorgan Asset Management, said: “While peak inflation is welcome news, it is probably not enough to allow the Fed to ease tightening or soften it. recession anxiety”.

Core inflation, a measure of price growth that excludes volatile categories including energy and food, also fell short of expectations, remaining at the 5.9% it hit in June and much lower than the peak in March of 6.5%.

“I think this could be a new bull market as opposed to a bear market rally. Eventually the Fed will pivot, growth will have to slow down,” said Patrick Spencer, vice president of equities at Baird.

However, others warn that inflation remains high. Brian Nick, chief investment officer at Nuveen, said: “It would be nice to see a report come out in cooler times, but we’ll leave the champagne bottles closed for now.”

In Europe, the Stoxx 600 closed up 0.9% and the German Dax index gained 1.2% after falling in the previous session.

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