The CPI inflation report for April was released on Wednesday and showed a decrease in the year-over-year headline inflation rate from 5.0 percent in March to 4.9 percent in April. However, month-over-month, the inflation rate increased by 0.4 percent. Core inflation, which strips out food and energy prices, is still high at 5.5 percent and is preferred by the Federal Reserve as a better gauge of inflation. Food inflation is up 7.7 percent while energy prices are down 5.1 percent year over year. Shelter inflation remains high at 8.1 percent, and services excluding housing are up 6.8 percent. The market reacted positively to the report, but the overall report is considered destructive because basic expenses are going up faster than income growth.
The Nasdaq closed at an eight-month high, buoyed by a lower-than-expected increase in April inflation and the rollout of Alphabet's latest artificial intelligence technology at recent Google I/O event. The CPI data gives hope that the Fed's interest rate hike cycle is coming to an end but is not enough to support the market as debt ceiling remain unsolved. Traders are pricing in a pause in rate increases at the Fed's June meeting and a less than 4% chance of another 25 basis point hike.
Gold prices remained steady as US inflation eased slightly in April but remained elevated, leading to expectations of high interest rates for longer. Minute reaction by the stock market on inflation data gives gold the potential to maintain its higher price although the price is consolidating which hints at a wide range volatile movement in the near future.
Oil prices bounced back on Thursday as stronger fuel demand data from the US supported the market. The increase came after a sharper-than-expected drop in US petrol inventories, reflecting the country's increased demand for fuel. However, investors remain cautious as rising global interest rates instill recessionary fears, and a lack of signs of improved demand can causes commodities markets to become bearish.
The yuan's recent resilience against the US dollar is masking a broader depreciation that may accelerate, with factors such as dividend outflows, geopolitical tensions, and doubts over China's economic re-opening optimism serving as headwinds for the currency. Yuan-based debt has also been dumped by foreign investor since early 2022, putting doubt in the currency stability.