US shares and bonds cling on to inflation-driven gains

US shares and bond prices held on to their inflation-inspired gains from the previous session on Thursday as traders digested data showing a small increase in US retail sales.

US retail sales increased solidly in December, the Thursday data showed, if below expectations. Stocks had surged on Wednesday on the back of an easing in US core inflation.

Separate data showed that while the number of Americans filing new applications for unemployment benefits increased more than expected last week, it remained at levels consistent with a healthy labour market.

That was enough for US share indexes to hold on to most of their gains from the previous day. The Dow Jones Industrial Average fell 86.20 points, or 0.20%, to 43,135.52, the S&P 500 fell 4.24 points, or 0.07%, to 5,945.67 and the Nasdaq Composite fell 17.86 points, or 0.10%, to 19,491.59.

On Wednesday, all three major indexes registered their biggest daily percentage gains since Nov. 6 - the day after the US presidential election - after a benign US inflation report that showed core inflation, which excludes food and energy prices, rose by 3.2% compared to the previous year, below forecasts for 3.3%.

Bonds also rallied sharply on that data and the 10-year Treasury yield fell 13.5 basis points on Wednesday, its biggest daily fall since mid November. US/]

It was 2 bps higher on Thursday at 4.67%, but still well off the 4.80% it touched at the start of the week. With Thursday’s data out of the way, markets’ focus is turning towards US politics, as investors grapple with how to price an incoming Donald Trump presidency.

Trump will be inaugurated on Monday.

“There was a huge market reaction yesterday, though that did seem to be an over-reaction to the data, perhaps because the market was already asking whether it had priced in too much inflation from Trump’s policies,” said Jane Foley, head of global FX strategy at Rabobank.

Investors generally expect President-elect Donald Trump’s tariff and tax cutting plans to boost growth and inflation though they are waiting to see what he will actually propose and when.

“We are now so close to the inauguration that the market is just going to wait to try and gauge whether they see too much inflation risk or not enough,” said Foley.

The start of the corporate earnings season has also been helping shares around the world, and, on Thursday, Morgan Stanley rose 1.5% after it reported its profit more than doubled in the fourth quarter, fueled by a wave of dealmaking and stock sales that drove its revenue to a full-year record.

Bank of America was flat after its results, which also beat expectations. On Wednesday, JPMorgan, BlackRock and Goldman Sachs delivered robust earnings.

The trend was seen elsewhere in the world too. In Europe, Richemont, the owner of Cartier jewellery, jumped 15% on Thursday after its results exceeded analyst expectations, driving up the wider European luxury sector.

And in Asia, chipmaker Taiwan Semiconductor Manufacturing Co , reported record quarterly profit - albeit in line with expectations - and rose 3.7%, offering support to other chip firms.

In currency markets, Japan’s yen was the focus, as it hit its strongest in nearly a month on the dollar and euro after comments from Governor Kazuo Ueda prompted traders to price in a more than 70% chance the Bank of Japan will raise interest rates next week.

The dollar was last down 0.24% on the Japanese currency at 156.12 yen. The euro eased by 0.55% to 160.5

Other currencies were quiet, but the pound dropped 0.4% on both the dollar and lost ground on the euro after British GDP rose just 0.1% in December, below expectations.

In commodities, Brent crude futures slipped 0.37% to $81.74 a barrel, as investors processed the complex ceasefire accord between Israel and militant group Hamas. US crude futures were down 0.56% at 79.6 a barrel.

Spot gold hit a one month high of $2,718.3 per ounce after the shift in interest rate expectations.

US business inventories rose marginally in November, suggesting that restocking will probably not contribute to economic growth in the fourth quarter. Inventories ticked up 0.1% after being unchanged in October, the Commerce Department’s Census Bureau said on Thursday. The slight rise in inventories, a key component of gross domestic product, was in line with economists’ expectations. Inventories increased 2.6% on a year-on-year basis in November. The pace of inventory accumulation could pick up in the months ahead as businesses stockpile goods in anticipation of higher import tariffs. President-elect Donald Trump, who will be inaugurated next week, is planning broad tariffs on goods.

Inventories and trade are the most volatile components of GDP. Private inventory investment was a small drag on GDP in the third quarter. The economy grew at a 3.1% annualized rate in the third quarter. The Atlanta Federal Reserve is forecasting GDP to have increased at a 2.7% rate in the fourth quarter. Retail inventories gained 0.2% in November rather than 0.3%, as estimated in an advance report published last month. They also increased 0.2% in October.

Motor vehicle inventories slipped 0.3% instead of the previously reported 0.4%. They were unchanged in October.

Agencies

US shares and bond prices held on to their inflation-inspired gains from the previous session on Thursday as traders digested data showing a small increase in US retail sales.

US retail sales increased solidly in December, the Thursday data showed, if below expectations. Stocks had surged on Wednesday on the back of an easing in US core inflation.

Separate data showed that while the number of Americans filing new applications for unemployment benefits increased more than expected last week, it remained at levels consistent with a healthy labour market.

That was enough for US share indexes to hold on to most of their gains from the previous day. The Dow Jones Industrial Average fell 86.20 points, or 0.20%, to 43,135.52, the S&P 500 fell 4.24 points, or 0.07%, to 5,945.67 and the Nasdaq Composite fell 17.86 points, or 0.10%, to 19,491.59.

On Wednesday, all three major indexes registered their biggest daily percentage gains since Nov. 6 - the day after the US presidential election - after a benign US inflation report that showed core inflation, which excludes food and energy prices, rose by 3.2% compared to the previous year, below forecasts for 3.3%.

Bonds also rallied sharply on that data and the 10-year Treasury yield fell 13.5 basis points on Wednesday, its biggest daily fall since mid November. US/]

It was 2 bps higher on Thursday at 4.67%, but still well off the 4.80% it touched at the start of the week. With Thursday’s data out of the way, markets’ focus is turning towards US politics, as investors grapple with how to price an incoming Donald Trump presidency.

Trump will be inaugurated on Monday.

“There was a huge market reaction yesterday, though that did seem to be an over-reaction to the data, perhaps because the market was already asking whether it had priced in too much inflation from Trump’s policies,” said Jane Foley, head of global FX strategy at Rabobank.

Investors generally expect President-elect Donald Trump’s tariff and tax cutting plans to boost growth and inflation though they are waiting to see what he will actually propose and when.

“We are now so close to the inauguration that the market is just going to wait to try and gauge whether they see too much inflation risk or not enough,” said Foley.

The start of the corporate earnings season has also been helping shares around the world, and, on Thursday, Morgan Stanley rose 1.5% after it reported its profit more than doubled in the fourth quarter, fueled by a wave of dealmaking and stock sales that drove its revenue to a full-year record.

Bank of America was flat after its results, which also beat expectations. On Wednesday, JPMorgan, BlackRock and Goldman Sachs delivered robust earnings.

The trend was seen elsewhere in the world too. In Europe, Richemont, the owner of Cartier jewellery, jumped 15% on Thursday after its results exceeded analyst expectations, driving up the wider European luxury sector.

And in Asia, chipmaker Taiwan Semiconductor Manufacturing Co , reported record quarterly profit - albeit in line with expectations - and rose 3.7%, offering support to other chip firms.

In currency markets, Japan’s yen was the focus, as it hit its strongest in nearly a month on the dollar and euro after comments from Governor Kazuo Ueda prompted traders to price in a more than 70% chance the Bank of Japan will raise interest rates next week.

The dollar was last down 0.24% on the Japanese currency at 156.12 yen. The euro eased by 0.55% to 160.5

Other currencies were quiet, but the pound dropped 0.4% on both the dollar and lost ground on the euro after British GDP rose just 0.1% in December, below expectations.

In commodities, Brent crude futures slipped 0.37% to $81.74 a barrel, as investors processed the complex ceasefire accord between Israel and militant group Hamas. US crude futures were down 0.56% at 79.6 a barrel.

Spot gold hit a one month high of $2,718.3 per ounce after the shift in interest rate expectations.

US business inventories rose marginally in November, suggesting that restocking will probably not contribute to economic growth in the fourth quarter. Inventories ticked up 0.1% after being unchanged in October, the Commerce Department’s Census Bureau said on Thursday. The slight rise in inventories, a key component of gross domestic product, was in line with economists’ expectations. Inventories increased 2.6% on a year-on-year basis in November. The pace of inventory accumulation could pick up in the months ahead as businesses stockpile goods in anticipation of higher import tariffs. President-elect Donald Trump, who will be inaugurated next week, is planning broad tariffs on goods.

Inventories and trade are the most volatile components of GDP. Private inventory investment was a small drag on GDP in the third quarter. The economy grew at a 3.1% annualized rate in the third quarter. The Atlanta Federal Reserve is forecasting GDP to have increased at a 2.7% rate in the fourth quarter. Retail inventories gained 0.2% in November rather than 0.3%, as estimated in an advance report published last month. They also increased 0.2% in October.

Motor vehicle inventories slipped 0.3% instead of the previously reported 0.4%. They were unchanged in October.

Agencies