Wall Street saw a positive start to the trading day as US stocks surged following the release of official inflation data. The US consumer price index (CPI) rose to 2.9% in December, up from 2.7% in November, according to the Labor Department.
Core inflation, which excludes food and energy costs, showed a slight decline, dropping from 3.3% to 3.2% month-over-month.
This increase aligns with economists’ forecasts, as traders anticipate inflationary policies, including tariffs, to be implemented when former President Donald Trump returns to the White House later this month.
US Treasury Yields Fall Despite Inflation Increase
US Treasury bond yields dropped sharply, as underlying inflation was lower than expected. The yield on the 10-year Treasury note fell by 11 basis points to 4.67%. However, this decline was still overshadowed by the drop in UK government borrowing costs.
UK Inflation Drops Unexpectedly
In a positive development for the UK economy, inflation fell unexpectedly to 2.5% in December, according to the Office for National Statistics. This marked a slight decrease from 2.6% in November, surprising economists who had predicted inflation to remain steady.
Core inflation in the UK also fell more than expected, dropping from 3.5% to 3.2%. Analysts had forecasted a smaller decline to 3.4%. This easing of inflation is seen as a boost for the Bank of England, which aims to bring inflation down to 2% within the next two years.
Grant Fitzner, an economist at the ONS, explained that inflation slowed due to lower hotel prices and a smaller increase in tobacco costs compared to the previous year. However, rising fuel prices and second-hand car costs contributed to the upward pressure on inflation.
UK and European Stock Markets See Gains
UK stocks rallied following the positive inflation data. The FTSE 100 index closed 1.2% higher, with housebuilding stocks jumping over 4% on expectations of two interest rate cuts by the end of the year. This was seen as a potential benefit for mortgage borrowers.
In Europe, markets also saw strong gains. The German DAX rose by 1.6%, while the French CAC gained 1.1%. The pan-European STOXX 600 index increased by 1.4%.
Wall Street Benefits from Strong Bank Earnings
Back on Wall Street, the Dow Jones Industrial Average surged 1% in early trading. The S&P 500 rose 1.1%, while the Nasdaq Composite jumped 1.6% to reach 19,350.31. The rally was partly driven by strong quarterly earnings reports from the largest US banks.
Currency Markets: The Pound Gains Against the US Dollar
In currency markets, the British pound strengthened by 0.4% against the US dollar, reaching 1.2258. This uptick reflects positive sentiment surrounding the UK’s inflation data.
Overall, both US and European stock markets gained momentum as traders digested the latest inflation figures from both sides of the Atlantic.
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