US stocks fluctuate after inflation eases a little more than expected

European stocks inched higher and Wall Street futures were steady on Wednesday ahead of closely watched US inflation data that will heavily influence the Federal Reserve’s next interest rate decision.

The region-wide Stoxx Europe 600 opened 0.1 per cent higher. Germany’s Dax and London’s FTSE 100 both gained 0.2 per cent.

Contracts tracking Wall Street’s benchmark S&P 500 were flat while those tracking the tech-heavy Nasdaq 100 slipped 0.1 per cent ahead of the New York open.

The muted moves in equity markets came as traders await the latest US consumer price index report from the Bureau of Labor Statistics.

Data on Wednesday is expected to show headline inflation slowing from 6 per cent in the year to February to 5.1 per cent in March, according to a Bloomberg survey of economists. That would be its lowest level since May 2021.

However, core inflation, preferred by the Fed since it strips out volatile food and energy prices, is projected to have edged up 0.1 percentage point to 5.6 per cent.

Unlike the bond market, “which has worried about economic growth for a while”, the equity market seems to be “only worried about aggressive Fed hiking, which is already off the table”, said Mike Zigmont, head of trading and research at Harvest Volatility Management. “The Fed has one [quarter percentage point] hike left, if that.”

Swaps markets are pricing in a roughly 75 per cent chance of a 0.25 point rate rise in May, with no increase expected in June and an almost even chance of a rate cut in July.

Minutes from the Federal Open Market Committee’s March meeting, released on Wednesday afternoon, are meanwhile likely to shed some light on policymakers’ rationale when they delivered a quarter-point rate rise in the midst of a brewing banking crisis.

US government debt rallied slightly early on Wednesday, with yields on two-year Treasuries down 0.02 percentage points to 4.03 per cent and 10-year yields falling marginally to 3.43 per cent. A measure of the dollar’s strength against a basket of six major currencies declined 0.1 per cent.

Asian equities were mixed, with Hong Kong’s Hang Seng index down 1 per cent and China’s CSI 300 flat. Japan’s Topix and South Korea’s Kospi added 0.8 per cent and 0.1 per cent, respectively.

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