Wall Street stocks set new records

Stocks have rallied since October as inflation slows

By AFP

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The Wall Street sign is pictured at the New York Stock exchange. — Reuters

Published: Wed 20 Dec 2023, 10:46 PM

Wall Street stocks set fresh record highs on Wednesday, after the Dow closed Tuesday at a fifth-straight record high.

Shares swung higher after an initial spate of profit-taking as US consumer confidence climbed sharply in December, reflecting mounting optimism for the future.

The Dow was less than 0.1 per cent higher at 37,586.87 points in late-morning trading, but that was enough to push it to a new high. The tech-heavy Nasdaq also set a new record high.

Stocks have rallied since October as slowing inflation fuels expectations by investors that central banks, which hiked interest rates to get a grip on rising prices, will be able to begin cutting them next year.

The rally has also been premised on the US economy making a soft landing — meaning it would avoid a recession, and the consumer confidence reading adds to a slew of data that comforts expectations that a contraction in activity will be avoided.

The advances come even as central bank officials try to push back against expectations, which have set markets up for a healthy end-of-year rally.

The next key event this week will be the release on Friday of the US personal consumption expenditures (PCE) price index, which is the Fed’s preferred gauge of inflation.

The reading’s fall in recent months, along with consumer prices and a slowing jobs market, has been among the main reasons Fed decision-makers are feeling confident that they are on the right track.

Still, they are trying to prevent investors getting ahead of themselves by tempering expectations.

In Europe, Frankfurt and Paris stocks ended little changed, but London’s FTSE 100 rose by 1.0 per cent after data showed UK inflation slowed in November to 3.9 per cent — the lowest rate since September 2021.

Britain has had the most stubborn inflation and the data sparked speculation the Bank of England could now decide to start cutting interest rates next year, having lifted them to a 15-year peak of 5.25 per cent in order to bring down inflation from double digits.

However, concerns persist after core inflation — which strips out food and energy costs — eased only slightly to stand at 5.2 per cent in November.

“The FTSE 100 has enjoyed a welcome boost, with markets reacting to a surprise slump in UK CPI that lifted expectations for a May rate cut from the BoE,” said Scope Markets analyst Joshua Mahony.

Asian stocks mostly rallied after another record Wall Street performance Tuesday.

Oil prices extended their recent rally, which was fuelled by companies suspending transit via the Red Sea owing to attacks on cargo ships by Yemen’s Iran-backed Huthi rebels in solidarity with Gaza.

According to the International Chamber of Shipping, a London-based trade association for shipping firms, 12 per cent of global trade passes through the Red Sea.

Moving around Africa can add a week to travel between Asia and Europe, causing supply chain disruptions and raising transportation costs.

But OANDA analyst Craig Erlam said the rebound could also reflect expectations of a drop in interest rates next year.

“With markets pricing in so many rate cuts now, that could boost the global economy next year and by extension demand,” he said.