Stocks rise after soft US inflation reading with Middle East in focus

NEW YORK/ MILAN, July 15 : MSCI’s global equities index rose on Wednesday after a surprise drop in the U.S. inflation reading and a second day of strong earnings reports while oil futures turned lower even as U.S.-Iran hostilities showed no signs of abating.  

U.S. producer prices were softer than expected in June in another indication – along with consumer price data released on Tuesday – that inflation was retreating before the recent escalation in the Middle East conflict.

The Labor Department’s Bureau of Labor Statistics said on Wednesday that the Producer Price Index for final demand dropped 0.3 per cent last month compared with economist forecasts that it would be unchanged.

Meanwhile, the U.S. conducted a new wave of strikes against Iran’s coastal defence systems and cruise missile storage and launch sites on Wednesday after reimposing a naval blockade of Iranian ports, while Iran threatened to shut off more regional energy exports.

Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey,  suggested that while the latest inflation data was supporting stocks on Wednesday, investors were ignoring concerns about Iran and the fact that June’s readings don’t reflect recent increases in oil prices. 

“We’re in a market phase where bad news doesn’t seem to hurt the market and bad news that isn’t quite as bad as we thought it would be really helps the market,” Meckler said.

And Wednesday’s earnings reports also helped sentiment after Tuesday’s strong start to the reporting season from some Wall Street banks. Morgan Stanley on Wednesday reported a second-quarter profit increase from strong mergers and acquisitions activity. BlackRock’s quarterly profit rose, as a stock market rally boosted client asset values. And in healthcare, Johnson & Johnson’s sales and profit beat analyst expectations.

At 11:44 a.m. ET (1545 GMT) the Dow Jones Industrial Average rose 172.89 points, or 0.33 per cent, to 52,681.16, the S&P 500 rose 12.74 points, or 0.17 per cent, to 7,556.33 and the Nasdaq Composite rose 86.70 points, or 0.33 per cent, to 26,193.95. 

The MSCI World Price Index rose 5.20 points, or 0.46 per cent, to 1,126.77 while the pan-European STOXX 600 index rose 0.12 per cent.

Earlier, South Korea’s tech-heavy KOSPI index closed up more than 6 per cent, with memory chip maker SK Hynix jumping 8.8 per cent in Seoul. However, its U.S.-traded shares were down almost 10 per cent and the Philadelphia semiconductor index sank more than 3 per cent.  Earlier, Japan’s Nikkei gained 1.5 per cent.

Meanwhile in government bonds, U.S. Treasury yields fell with the benchmark 10-year Treasury note on track for its first consecutive daily declines in nearly three weeks, after economic data showed an easing of price pressures for a second straight day. 

The yield on benchmark U.S. 10-year notes fell 3.57 basis points to 4.549 per cent, from 4.585 per cent late on Tuesday while the 30-year bond yield  fell 1.98 basis points to 5.0742 per cent.

The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 4.37 basis points to 4.149 per cent.

In currencies, the dollar slipped against major currencies after the data reinforced signs of easing inflation,  supporting hopes that the Federal Reserve can remain patient on interest rates.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.16 per cent to 100.72, with the euro up 0.14 per cent at $1.1435.

Against the Japanese yen, the dollar weakened 0.07 per cent to 162.11.

 Oil prices were choppy as traders monitored the Middle East hostilities and the prospects for energy shipping in the Strait of Hormuz.

U.S. crude fell 0.98 per cent to $78.56 a barrel and Brent fell to $83.80 per barrel, down 1.1 per cent on the day.

Spot gold fell 0.11 per cent to $4,048.79 an ounce.