Stocks up with yields as US inflation, Ukraine optimism offset tariff fears

Global stocks rose on Wednesday with US Treasury yields as relief over cooler US inflation in February was countered by uncertainty around US President Donald Trump's tariff policies and their potential impact on inflation and global growth.

Oil prices settled higher after data on slower stockpile builds, while the euro pulled back slightly after hitting a five-month high in the previous day's session on hopes for a ceasefire between Ukraine and Russia.

Wednesday's US Department of Labour data showed the Consumer Price Index rose 2.8 per cent on an annual basis in February, below the 2.9 per cent forecast from economists polled by Reuters. On a monthly basis, it rose 0.2 per cent after accelerating 0.5 per cent in January and versus economists' estimate of 0.3 per cent.

 

The S&P 500 opened higher but then lost steam in morning trading. It returned to positive territory before midday and stayed there for the rest of the session.

"It's maybe some liquidity coming back into the market," said Paul Christopher, head of global market investment strategy for Wells Fargo Investment Institute in St. Louis, Missouri.

"What we're seeing is some money coming back in buying the dip. That's a good sign."

While investors were relieved that inflation was lower than expectations, Christopher said that strength in services price increases also showed that the economy was still solid.

On Wall Street the Dow Jones Industrial Average fell 82.55 points, or 0.20 per cent, to 41,350.93, the S&P 500 rose 27.23 points, or 0.49 per cent, to 5,599.30 and the Nasdaq Composite rose 212.36 points, or 1.22 per cent, to 17,648.45.

But investors were still wary of US trade policy and the impact that could have on inflation going forward.

"Today's inflation report is obviously good news but it's also backward-looking and doesn't tell us anything about where we're headed from here and what the inflationary impact of all these tariffs might be," said Jim Baird, chief investment officer at Plante Moran Financial Advisors.

Investors had to scramble to keep up with events on Tuesday after Trump threatened to double steel and aluminium tariffs on Canada to 50 per cent, then reversed course later in the day.

"The hard part is the uncertainty around tariffs," said Baird. "It's one thing to understand that the rules of the game are changing, but understanding what those rules will be and when they'll be clearly defined is another thing entirely."

Trump threatened on Wednesday to escalate a global trade war with further tariffs on European Union goods

This was after the European Commission said Europe would impose counter tariffs on 26 billion euros' ($28 billion) worth of US goods, including dental floss, diamonds, bathrobes and bourbon. Europe's threat came after Trump's 25 per cent tariffs on all steel and aluminium imports took effect on Wednesday.

MSCI's gauge of stocks across the globe rose 4.08 points, or 0.49 per cent, to 830.72 after rising earlier to 834.73

The pan-European STOXX 600 index earlier closed up 0.81 per cent after four straight sessions of declines on optimism around a potential Ukraine-Russia ceasefire and some help from the cooler-than-expected US inflation report.

In Treasuries, yields rose with the potentially inflationary impact of tariffs offseting optimism about cooling inflation.

"This is the last reading not impacted by tariff distortions, so to some extent the market's a little bit hesitant to over-react to a better print," said Gennadiy Goldberg, head of US rates strategy at TD Securities in New York.

The yield on benchmark US 10-year notes rose 2.8 basis points to 4.316 per cent, from 4.288 per cent late on Tuesday while

the 30-year bond yield rose 3.2 basis points to 4.6355 per cent.

The two-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 5 basis points to 3.991 per cent, from 3.941 per cent late on Tuesday.

With investor concerns mounting about recession and a global trade war, the yield spreads between corporate bonds and US Treasuries widened late on Tuesday to their widest level since September.

In currencies, US dollar performance was mixed due to counter currents of cooling inflation versus worries that tariffs could crank it up going forward.

The euro was down 0.25 per cent at $1.0891 and against the Japanese yen, the dollar strengthened 0.38 per cent to 148.33.

But the Canadian dollar strengthened 0.45 per cent versus the greenback to C$1.44 per dollar and against the Swiss franc, the dollar weakened 0.08 per cent to 0.882.

The Russian rouble reached a more than six-month high on Tuesday, but pulled back on Wednesday, weakening 1.75 per cent against the greenback to 87.147 per dollar.

Oil prices rose as US government data showed tighter oil and fuel inventories than expected, though investors kept an eye on mounting fears of a US economic slowdown and the impact of tariffs on global economic growth.

US crude settled up 2.16 per cent or $1.43 at $67.68 a barrel while Brent settled at $70.95 per barrel, after rising 2 per cent or $1.39 on the day.

Safe-haven gold rose, aided by tariff uncertainty and the cooler US inflation report.

Spot gold rose 0.53 per cent to $2,931.59 an ounce. US gold futures rose 0.74 per cent to $2,934.40 an ounce.

Elsewhere in metals, copper rose 1.31 per cent to $9,789.00 a tonne while three-month aluminum on the London Metal Exchange fell 0.11 per cent to $2,700.00 a tonne.