While U.S. inflation missed projections again and Treasury debt yields rose, AI-fueled Wall St stock indices reached historic closing highs, either ignoring or flourishing on the news. While economists analyzed February's slightly hotter-than-expected consumer price report, bond market dismay was clear.
Even though yearly "core" CPI inflation fell again to 3.8%, its lowest in over three years, it was a tenth of a percentage point above forecast, headline inflation rose to 3.2% and monthly readings were volatile.
Rent estimates and fuel exaggerated data, whereas services inflation excluding shelter, carefully tracked by the Federal Reserve, performed better. Many blamed statistical peculiarities in official models for the early-year stickiness.
However, interest rate futures lowered expected Fed easing for the year and two and 10-year Treasury rates rose, with the latter rising more than 5 basis points to 4.15% early Wednesday. A poorly received 10-year note auction, partially due to the CPI surprise, may have boosted that move. Later Wednesday, $22 billion in 30-year bonds are auctioned.
However, Oracle (ORCL.N), opens new tab, whose shares rose 12% after announcing a joint announcement with Nvidia (NVDA.O), revived the AI craze in stocks. Nvidia shares rose 7% after a week of losses. In addition, shares in Arm Holdings, the British chip designer backed by Softbank Group (9984.T), opens new tab, rose 2% as markets prepared for increased trading activity after the lockup period for its blockbuster initial public offering last September expired.
All of this lifted S&P500 (.SPX) to a fresh closing high despite inflation, and futures held those gains on Wednesday. Although markets are still pricing Fed rate reduction despite long-term inflation projections at 2%, equities may be like a slightly hot economy. Bank of America upgraded its S&P500 year-end target to 5,400 and its profit growth prediction to 12% on Tuesday.
Japan's Nikkei index (.N225), opens new tab declined for a third straight day as investors anticipated a Bank of Japan policy change next week. Toyota (7203.T), opens new tab agreed to give factory workers their highest pay hike in 25 years on Wednesday, raising hopes that the central bank could tighten policy.
The dollar rose broadly (.DXY), opens new tab, and dollar/yen rose. Bitcoin, which has trebled since September, rose above $73,000 before next month's "halving" event. On Tuesday, President Joe Biden and former President Donald Trump won their parties' nominations, starting the first presidential race rerun in nearly 70 years.
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