(New York) The New York Stock Exchange was trading higher on Friday, buoyed by hopes of a debt ceiling deal even as new inflation numbers show prices still stubbornly rising.
The Dow Jones Index gained 0.67%, the tech-heavy NASDAQ advanced 0.94% while the S
Inflation in the United States surprised everyone by accelerating more strongly than expected in April, according to the Fed’s preferred measure of rising prices.
The PCE index increased by 4.4% over one year against 4.2% the previous month. More worryingly, the underlying index, removing volatile sectors like food and energy, accelerated to 4.7%.
These strong inflation figures dampened the possibility of a sustained pause in interest rate hikes, as the markets had been pricing.
“Inflation is a little stronger than expected in April and suggests the Fed still has work to do,” said Paul Aswhorth of Capital Economics.
The economist, however, judges that “with the impasse on the debt ceiling, the Fed is likely to remain on the sidelines in June”, at its next meeting on the 14th, “but some officials are considering a further increase in July “.
In addition, US household spending rose sharply (0.8% in April), partly reflecting rising prices, while household incomes also rose (0.4%).
The momentum in consumption was good news for the markets, dispelling the specter of a recession. But for Chris Low of FHN Financial, “the odds of an interest rate hike as early as June are on the rise again.”
Investors had their eyes mostly on the debt ceiling talks that seem to be moving in the right direction between the White House and congressional leaders, although an approval vote afterwards will be difficult to obtain from the elected Republicans.
Discussions between the White House and the Republican opposition are “productive,” executive spokeswoman Karine Jean-Pierre said on Thursday, dispelling the prospect of a US default.
“We are talking this morning about a possible agreement that would block an increase in federal spending for two years, except in the defense sector,” said Patrick O’Hare of Briefing.com. “At the same time, it is suggested that some members of the House of Representatives, coming from both parties, do not agree with these principles,” added the analyst.
After the release of the inflation figures, bond yields started to rise again slightly. On the two-year bills, the most sensitive to the rise in Fed rates, they climbed to 4.58% against 4.53% the day before.
On the stock market, chipmaker Marvell Technology gained more than 24% after positive comments on the buoyant momentum of artificial intelligence. Nvidia, an industry leader in dedicated AI processors, had lifted the NASDAQ the previous day by gaining more than 24% on ambitious Q2 projections.
Struggling fashion brand Gap jumped more than 11% to $8.25 after a surprise first-quarter profit at the cost of strong structural savings.
Regional banks were starting to fall again, as if the prospect of a resumption of Fed rate hikes could create further difficulties for these institutions. PacWest was down 4.63%, Zions was down almost 2%.
