Stocks rise after soft US inflation reading with Middle East in focus

By Sinéad Carew and Danilo Masoni

NEW YORK/ MILAN, July 15 (Reuters) – MSCI’s global equities index rose on Wednesday after a surprise drop in the U.S. inflation reading and a second day of strong earnings reports while oil futures closed slightly higher with U.S.-Iran hostilities showing no signs of abating.

U.S. producer prices were softer than expected in June. It was another indication, along with consumer price data released on Tuesday, that inflation was retreating before the recent escalation in the Middle East conflict. 

The Labor Department’s Bureau of Labor Statistics said on Wednesday that the Producer Price Index for final demand dropped 0.3% last month compared with economist forecasts that it would be unchanged.

Meanwhile, the U.S. conducted a new wave of strikes against Iran’s coastal defence systems and cruise missile storage and launch sites on Wednesday after reimposing a naval blockade of Iranian ports, while Iran threatened to shut off more regional energy exports.

But with oil prices already touching their highest levels in a month on Monday, the market appeared to ignore geopolitics on Wednesday because the current flare-up in fighting was already reflected in prices, according to Phil Orlando, chief market strategist at Federated Hermes.

Instead, investors focused on encouraging earnings reports and inflation data as well as Federal Reserve Chair Kevin Warsh’s vow to fight inflation in his second appearance before Congress.      

“You’ve good inflation data and a Warsh congressional testimony and we’re in the early stages of what we think is going to be a very good earnings season,” Orlando said. 

However, while Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey,  saw the latest inflation data as a support for stocks on Wednesday, he said that investors were ignoring the fact that June’s inflation doesn’t reflect recent increases in oil prices. 

“We’re in a market phase where bad news doesn’t seem to hurt the market and bad news that isn’t quite as bad as we thought it would be really helps the market,” Meckler said.

Still, Wednesday’s earnings reports boosted sentiment after Tuesday’s strong start to the reporting season from some Wall Street banks. Morgan Stanley on Wednesday reported a second-quarter profit increase from strong mergers and acquisitions activity. BlackRock’s quarterly profit rose, as a stock market rally boosted client asset values. And in healthcare, Johnson & Johnson’s sales and profit beat analyst expectations.

In U.S. equities, the Dow Jones Industrial Average rose 150.37 points, or 0.29%, to 52,658.64, the S&P 500 rose 28.81 points, or 0.38%, to 7,572.40 and the Nasdaq Composite rose 162.22 points, or 0.62%, to 26,269.23. 

The MSCI World Price Index rose 7.06 points, or 0.63%, to 1,128.63.

Earlier the pan-European STOXX 600 index finished up 0.10%.

During Asian trading, South Korea’s tech-heavy KOSPI index closed up more than 6%, with memory chip maker SK Hynix jumping 8.8% in Seoul. However, the company’s U.S.-traded shares finished down 9% and the Philadelphia semiconductor index closed down 2%.  

Meanwhile in government bonds, U.S. Treasury yields fell with the benchmark 10-year Treasury note on track for its first consecutive daily declines in nearly three weeks, after the economic data showed an easing of price pressures for a second straight day. 

The yield on benchmark U.S. 10-year notes fell 3.17 basis points to 4.553%, from 4.585% late on Tuesday while the 30-year bond yield fell 0.44 basis points to 5.0896%.

The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 5 basis points to 4.143%.

In currencies, the dollar slipped against major currencies after the data reinforced signs of easing inflation,  supporting hopes that the Federal Reserve can remain patient on interest rates.

“The dollar’s recent strength has largely been tied to expectations of tighter U.S. monetary policy,” said Steve Kolano, chief investment officer at Integrated Partners.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.36% to 100.52, with the euro up 0.37% at $1.1461.

Against the Japanese yen, the dollar weakened 0.02% to 162.2.

Sterling strengthened 1.08% to $1.3534 on expectations that Andy Burnham, who is likely to be named new Labour Party leader on Friday, will pick a fiscally conservative finance minister.

Oil prices were supported by stronger-than-expected inventory and traders largely shrugging off the latest wave of U.S. attacks against Iranian military installations that aimed to limit Tehran’s ability to strike shipping in the Strait of Hormuz.

U.S. crude settled up 0.33%, or 26 cents at $79.60 a barrel and Brent settled at $84.95 per barrel, up 0.26%, or 22 cents on the day.

In precious metals, gold prices were up slightly after a choppy session as worries about inflation and elevated interest rates remained despite the softer U.S. data due to escalating tensions in the Middle East.

Spot gold rose 0.13% to $4,059.01 an ounce. 

(Reporting by Sinéad Carew in New York, Danilo Masoni in Milan and Tom Westbrook in Singapore; Editing by Sharon Singleton, Timothy Heritage, Ros Russell and David Gregorio)