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Wall Street unfazed by hot inflation data

Customers shop for produce at the Eastern Market in Detroit, Michigan, on Sept. 17, 2022.

Matthew Hatcher/Bloomberg via Getty Images

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today 

Nikkei nears record level
Nikkei 225 closed just shy of the 40,000 level, hitting a fresh record high of 39,910.82, up 1.9%. The broader Topix index also added 1.3%. China’s CSI 300 and Hong Kong’s Hang Seng indexes advanced as well. Overnight, Wall Street ended on a high note as the Nasdaq Composite hit its first closing record since November 2021, rising 0.9%. The S&P 500 also jumped to a record close, up 0.52%. The Dow inched higher by 0.12%.

China foreign outreach
China’s Ministry of Commerce met with foreign businesses to address their operating challenges against the backdrop of declining investments in the country. The roundtable this week came amid a pick up in U.S.-China exchanges with both sides trying to ease tensions between the world’s two largest economic powers.

Europe’s bleak earnings
Europe is having its worst earnings season since the onset of Covid. Around a half of European companies missed earnings estimates in the latest reporting season despite already low expectations, analysts told CNBC, predicting the region will continue to struggle amid high interest rates. 

Market unlikely to burst
Bob Parker, senior advisor at trade body International Capital Markets Association, told CNBC there are signs of a bubble in company valuations and investor concentration in the technology sector. But he isn’t too worried that the market is on the brink of a bursting given a key difference with previous bubbles.

[PRO] Europe’s ‘Super 7’
Citi picked “Super 7” European stocks that it said are similar to the “Magnificent 7” U.S. technology stocks but have cheaper valuations leaving more room for them to rise. “These could be beneficiaries in a continued ‘narrowing’ environment,” the bank’s strategists noted.


The bottom line

January’s inflation came in hot and that isn’t great for the overall economic picture.

But the absence of worse-than-expected news was a relief for Wall Street nonetheless.

Data revealed the Fed’s preferred measure of inflation was stubbornly above the central bank’s target.

Still, figures for both headline and core personal consumption expenditures price index rose in line with Wall Street consensus. The lack of upside surprises soothed investor jitters and explains the stock markets’ muted reaction to the news.  

“The increase in the core PCE deflator for January stuck to script, coming in a hot 0.42%. But the increase was juiced by problematic seasonals,” Mark Zandi, chief economist at Moody’s Analytics, posted on X.

“Abstracting from the measurement issues, underlying inflation appears close to 2.5% annualized. Within hailing distance of the Fed’s 2% target. And everything points to continued moderation in inflation. Time for the Fed to begin cutting interest rates.”

Yet, the strong core prices won’t be welcome news for the Fed as they reflect lingering price pressures. The big question remains what the latest reading means for the central bank’s plans to lower interest rates later this year.

Atlanta Fed President Raphael Bostic noted the recent data showed the road back to the central bank’s inflation goal will be “bumpy.”

“They’ve come in higher than people hoped, but if you look over the long arc, the line is still going down,” he said Thursday. “That’s an important thing to keep in mind.”

That means February’s inflation data will come under scrutiny as Fed officials look for more evidence on whether January’s hot print was just a one-off.

— CNBC’s Jeff Cox contributed to this story.

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