Wall Street flirts with records as investors grow more optimistic about Fed rate cuts

Confidence was boosted after US inflation was shown to have fallen in June

Traders are seen on the floor at the New York Stock Exchange. The S&P 500 and Dow Jones Industrial Average both hit intraday highs on Friday. Reuters

Wall Street led a mostly positive close for global stock markets on Friday, on growing investor bets that the US Federal Reserve will soon start cutting interest rates.

Investor confidence was buoyed by data on Thursday showed inflation in the world's largest economy continued to ease in June as the headline consumer price index fell to 3 per cent year-on-year, down from 3.3 per cent a month earlier and lower than markets had been expecting.

On a monthly basis, the CPI index declined by 0.1 per cent, after it remained unchanged a month earlier. Core inflation was also lower than expected at 3.3 per cent, down from 3.4 per cent recorded for May.

This raised hopes that the Fed will cut interest rates soon, particularly in September. Lower rates are expected to boost economic growth, which would help raise fuel consumption. Easing inflation also weighed on the US dollar, making commodities more attractive for overseas buyers.

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The Fed last month had downgraded its rate-cut expectations for 2024, projecting it would only lower them once this year in a clear signal that plans to ease its restrictive stance have been delayed.

US producer prices, meanwhile, rose more than expected in June, the Labour Department reported on Friday.

Taken with the softer readings in the consumer price report, economists anticipated benign readings in the personal consumption expenditures inflation in June.

While Fed chairman Jerome Powell acknowledged the slowing inflation, he told politicians that more data was needed to strengthen the case for rate cuts.

“I don’t know for the Fed, but investors definitely got to the evidence that inflation is on a right path to justify a Fed rate cut sooner rather than later … after the latest CPI [consumer price index] report printed a slower-than-expected figures both for headline and core inflation, both on a monthly and on a yearly basis,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

On Wall Street, the S&P 500, Dow Jones Industrial Average and tech-rich Nasdaq Composite all closed 0.6 per cent higher, with the first two hitting new intraday highs.

Big bank stocks, however, fell after reporting mixed results, while technology shares rebounded, with Apple and Nvidia tallying gains of 1.3 per cent and 1.47 per cent, respectively.

Runs on Wall Street came to a halt on Thursday, as the S&P and Nasdaq ended a six and seven consecutive days of record closes.

For the week, S&P 500 rose 0.9 per cent, the Dow added 1.6 per cent and the Nasdaq inched up 0.2 per cent. Year-to-date, the indices are up 17.7 per cent, 6.1 per cent and 22.6 per cent, respectively.

In Europe, London's FTSE 100 ended 0.4 per cent higher as investors were also focused on the much-awaited Fed interest rate cut.

The CAC-40 in Paris, which is hosting the 33rd Olympic Games in two weeks, surged 1.3 per cent, while Frankfurt's DAX jumped 1.2 per cent.

Earlier in Asia, Tokyo's Nikkei bucked the trend as it plunged 2.5 per cent, as a strengthening yen, coupled with talk that the Bank of Japan intervened in foreign exchange markets to boost its currency, weighed on investors and the manufacturing sector.

Hong Kong's Hang Seng index leapt 2.6 per cent, while the Shanghai Composite settled flat.

In commodities, oil prices gave up gains and settled lower on Friday amid signs of easing inflation and hopes of strong summer fuel demand in the US, and rising expectations for a Fed rate cut.

Brent shed 0.43 per cent to close at $85.03 a barrel, while West Texas Intermediate declined 0.50 per cent to $82.21 a barrel.

Gold, meanwhile, eked out a third week of gains on the growing hopes of a Fed interest rate cut. It inched up less than 0.1 per cent to $2,420.70 an ounce.

“The start of an easing cycle by central banks and their continuous demand for gold may further support the precious metal,” said Mazen Salhab, chief market strategist for the Middle East and North Africa at broker BDSwiss.