(Updates throughout with U.S. consumer price inflation data; refreshes prices at 1248 GMT)
Global share markets rallied and the dollar dropped on Wednesday, after data showed U.S. inflation rose less than expected in April, while consumer spending slowed, underpinning expectations for Federal Reserve interest rate cuts this year.
The U.S. Bureau of Labor Statistics said its consumer price index rose by 0.3% in April, below expectations for a rise of 0.4%, matching March's 0.4% increase, while on an annual basis, CPI rose 3.4%, in line with forecasts and below the previous month's 3.5% rate.
The MSCI All-World share index .MIWD00000PUS rose 0.2% to new record highs, while U.S. stock futures ESc1 NQc1 jumped 0.4%, having traded flat earlier, indicating an upbeat start on Wall Street.
Separately, U.S. government data showed retail sales rose 3.04% year on year in April, versus March's 4.02% increase, and were flat on a monthly basis.
"Today’s figures show that the rate of inflation has fallen, compared to last month. Although this will offer reassurance to markets after an unwelcome uptick in CPI figures last month, the figures are unlikely to prompt an imminent change in interest rates," Richard Flynn, managing director at Charles Schwab UK, said.
"Officials have been fairly consistent in stating that current interest rates are sufficiently restrictive to bring inflation under control and that the next move will be a cut. However, it is also clear that they are in no rush to make that move," he said.
Investors do not anticipate any rate hikes in 2024, but they have had to dial back expectations for rate cuts, given how sticky inflation is.
After the CPI numbers, the futures market showed traders expect 50 basis points in cuts by December, compared with around 43 bps earlier. They expected some 150 bps in cuts at the start of 2024.
Data overnight showed U.S. producer prices increased more than expected in April, indicating that inflation remained stubbornly high early in the second quarter.
HOT OR NOT? Fed Chair Jerome Powell on Tuesday said the PPI data was "mixed" rather than "hot" because the prior month's data was revised lower.
"Market anticipation of rate cuts has been building recently based on weaker-than-expected U.S. labour market data, but if prices don't follow suit, then rate-cut hopes will be dashed," said Ryan Brandham, head of global capital markets, North America at Validus Risk Management.
Powell reiterated his message of caution over rate cut expectations, although the Fed chief, along with Cleveland Fed President Loretta Mester, poured cold water over the notion of rate hikes, ING economists said.
The dollar fell broadly after the CPI report, with the euro EUR=EBS rising by as much as 0.4% to a one-month high of $1.0869.
The dollar index =USD , which measures the U.S. currency against six others, was down 0.4% at 104.62.
The yen JPY=EBS was the strongest performer, leaving the dollar down 1.1% at a session low of 154.75.
The yen touched a 34-year low of 160.245 per dollar on April 29, triggering aggressive yen-buying that traders and analysts suspect was the work of the Bank of Japan and Japanese finance ministry.
Oil pared earlier losses following the data. Brent crude futures LCOc1 were up 0.1% at $82.50 a barrel, while U.S. crude rose 0.2% to $78.16.
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