US stocks rallied on Wednesday after the latest inflation data eased concerns on early tapering by the Federal Reserve. The report said CPI rose only 0.5% in July, so investors flocked in the stock market, which, in turn, pushed S&P 500 up by 0.23%. Meanwhile, the Nasdaq 100 declined because investors switched from traditional favorites like Amazon to cyclical stocks.
This clearly shows that investors are closely monitoring prices, as such affects the decision of the Federal Reserve on monetary policy. In addition, Kansas City Fed President Esther George recently said that the central bank should begin scaling back bond purchases since employment is now advancing to pre-crisis rates.
Anastasia Amoroso, chief investment strategist at iCapital Network, said the Fed should find solace in the latest report, but since the announcement on tapering is yet to be made, members should consider the impact of the Delta variant on the leisure and hospitality sector.
And even though the CPI data was in line with estimates, it will still take several months to resolve the debate over whether inflation is transient or not. But for now, the annual CPI is up 5.4% from an estimate of 5.3%.
"Today's softer-than-expected readings in the CPI core seem to validate the views of Powell, Williams and some of the other more moderate Fed members who are focusing on a slower path to normalization," said Giorgio Caputo, senior portfolio manager at J O Hambro Capital Management.
Other important events this week are:
- data on US jobless claims (Thursday);
- US PPI report (Thursday);
- monthly oil market report from OPEC (Thursday);
- employment data from Australia (Friday).