Market Soars as Inflation Data Signals Potential Fed Rate Cuts

Stocks surged and bond yields fell as U.S. producer prices increased less than expected in July. This has reinforced market expectations that the Federal Reserve may soon cut interest rates. Key indices like the S&P 500 and Nasdaq Composite saw significant gains, while Treasury yields also declined.

Stocks surged and bond yields fell on Tuesday after U.S. producer prices increased less than expected in July. This bolstered market expectations that cooling inflation could prompt the Federal Reserve to cut interest rates soon. The producer price index for final demand gained 0.1% in July, as reported by the Labor Department's Bureau of Labor Statistics.

Paul Ashworth, chief economist in North America at Capital Economics, noted the muted increase in PPI and unchanged core PPI for July, stating it aligns with the Fed's preference for core PCE prices rising at a below-2% annual pace. Wall Street responded positively; the S&P 500 jumped 1.4%, the Dow Jones Industrial Average rose 0.8%, and the Nasdaq Composite climbed 2.2%. MSCI's global stock gauge also increased by 1.4%.

In conjunction with speculation of monetary policy easing, Treasury yields fell. The 10-year Treasury yield dropped to 3.8579%, and the two-year Treasury yield decreased to 3.9543%. Europe's STOXX 600 index gained 0.5%, while Japan's Nikkei surged over 3% after a holiday on Monday. Economists remain cautious, with Viktor Shvets from Macquarie Capital describing recent volatility as a 'heart palpitation,' not a 'cardiac arrest.'

(With inputs from agencies.)