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Morning bid: New stock records jump the CPI gun

[May 15, 2024] A look at the day ahead in U.S. and global markets from Mike Dolan

Markets seem to have got bored waiting for today's big U.S. inflation print and stocks zoomed to new records in advance, taking slivers of comfort from Tuesday's producer price readout and a relatively relaxed Federal Reserve chairman.

A late rally on Wall St saw the tech-heavy Nasdaq notch a record closing high on Tuesday, triggering a domino effect across the world today.

With the notable exception of underperforming Chinese shares that have been hit by this week's sweeping U.S. trade tariffs, MSCI's all-country index charged to all-time highs on Wednesday - up more than 8% for the year to date and just shy of the S&P500's 10% gain.

Europe moved in the slipstream, with the STOXX 600 pan-Europe index clocking new records too.

The S&P500 is hovering less that 0.3% from its historic peak of 5264.85 and futures are firmer ahead of the open.

Aside from the meme stocks redux that's moving into its third day and generalized bullishness in fund manager surveys, there wasn't a great deal of new information to trigger the new highs.

Interest rate markets and Treasuries certainly took a 'glass half full' view of Tuesday's PPI data and Fed boss Jerome Powell's Dutch visit.

With futures markets back to pricing in almost two Fed rate cuts over the remainder of the year, 10-year Treasury yields recoiled to their lowest in more than a month.

Powell on Tuesday didn't give a huge amount away and was non-committal about next policy steps - but he seemed to be happy that disinflation was about to resume. Ahead of today's key CPI release, that may have packed a punch.

"I expect that inflation will move back down ... on a monthly basis to levels that were more like the lower readings that we were having last year," Powell said at a banking event in Amsterdam.

Powell's colleagues - Cleveland Fed chief Loretta Mester and Kansas City Fed boss Jeffrey Schmid - both chimed with Powell's 'patient' line overnight and the expectation that inflation would subside again.

Their takes put a gloss on an otherwise mixed PPI release that had above-forecast monthly gains but downward revisions to prior months, more contained annual measures and some encouraging details.

Based on the PPI data, economists estimate the Fed's favored core PCE price index could rise by 0.2% or 0.3% in April after gaining 0.3% in March. That would result in core inflation increasing by about 2.8% year-on-year, matching March's advance.

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A trader works inside a booth, as screens display a news conference by Federal Reserve Board Chairman Jerome Powell following the Fed rate announcement, on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 1, 2024. REUTERS/Stefan Jeremiah/File Photo

Those forecasts will hinge on today's April's CPI data, however. The monthly core CPI is expected to have eased to 0.3% from 0.4%, bringing annual core inflation back down to 3.6% from 3.8% in March.

Perhaps lost in the inflation focus is today's release of April retail sales data - a pretty important element in road testing second-quarter U.S. growth estimates still running north of 4%.

Elsewhere, the dollar slipped a touch in line with Treasury yields, hitting a one-month low versus the euro on Wednesday despite beefed up expectations for a rate cut from the European Central Bank next month.

Even typically hawkish Dutch central bank chief Klaas Knot, speaking with Powell on Tuesday, seemed to think a June cut is now baked in.

In company news, shares in Austria's Raiffeisen Bank dropped 2% after news it was warned by the U.S. Treasury in writing that its access to the U.S. financial system could be curbed because of its dealings in sanctioned Russia.

Key diary items that may provide direction to U.S. markets later on Wednesday:

* US April consumer price index, retail sales, May NAHB housing market index, May New York manufacturing survey, March retail/business inventories, US Treasury March TIC data on overseas Treasury holdings

* US corporate earnings: Cisco, Progressive

* Federal Reserve Board Governor Michelle Bowman, Fed Vice Chair for Supervision Michael Barr, Kansas City Fed President Jeffrey Schmid and Minneapolis Fed chief Neel Kashkari all speak

(By Mike Dolan, editing by Christina Fincher, mike.dolan@thomsonreuters.com)

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