Between inflation and debt talks, Wall Street opens modestly higher

The New York Stock Exchange was up on Friday, buoyed by hopes of a debt ceiling agreement, although new inflation figures show still-stubborn price increases.

The Dow Jones index gained 0.67%, the technology-dominated Nasdaq advanced 0.94% while the S&P 500 rose 0.65% by 2:00 p.m. GMT.

Inflation in the United States came as a surprise 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 such as food and energy, accelerated to 4.7%.

Annual inflation is therefore more than twice as high as the target set by the central bank.

These strong inflation numbers dampened the possibility of a sustained pause in interest rate hikes, as the markets had been pricing in.

“Inflation is a little stronger than expected in April and suggests that 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, it is likely that the Fed will 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 the rise in prices, while their 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 chances of an interest rate hike as early as June are on the rise again.”

Investors mostly had their eyes on the debt ceiling talks that seem to be moving in the right direction between the White House and congressional leaders, though an approval vote afterwards will be hard to come by from elected officials. republicans.

The discussions between the White House and the Republican opposition are “productive”, assured Thursday the spokesperson for the executive, Karine Jean-Pierre, removing the prospect of a default of payment from the United States.

“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 “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, one of the industry leaders in AI processors, had carried the Nasdaq the day before by gaining more than 24% thanks to ambitious projections for the 2nd quarter.

Struggling ready-to-wear 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 new difficulties for these institutions. PacWest lost 4.63%, Zions dropped almost 2%.

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