Wall Street rallies as hot PPI looks cooler under surface

A rally in US stocks and bonds looked counterintuitive after PPI headlines appeared to be the second hot inflation read this week, but, under the hood, key components looked more like they were moving the direction the Fed and Wall Street want.

But even while investors in New York markets lifted the S&P 500 a percent and the Nasdaq more than that on Thursday, continued gains on Asia bourses Friday are hardly assured, given the challenge of navigating the twists and turns from President Donald Trump as he pushes for a peace deal in Ukraine while setting up for a global trade war.

The prospect of Russia-Ukraine peace talks helped foster the risk-on mood in stocks, while the inflation news with potential dovish implications for Fed officials reversed Wednesday’s bond slump and the yield on the 10-year Treasury note fell almost 10 basis points to around 4.53%.

The bigger-than-forecast 0.4% rise in January’s Producer Price Index followed Wednesday’s news that consumer prices accelerated by the most in nearly 1-1/2 years in January. But some details suggested a more moderate increase in January in the PCE price index that is closely tracked by the US central bank for its 2% target.

For instance, physician’s office and hospital prices were either broadly unchanged or rose just slightly. Healthcare, with a nearly 20% weighting in the core PCE, declined 0.06%. Portfolio management prices, another important item on core PCE, posted a modest 0.4% increase.

Following the PPI data, US rate futures priced in 31 bps of easing this year, compared with 27 bps late on Wednesday, according to LSEG calculations. The next rate reduction is expected either at the October or December meeting.

Russia said on Thursday that Ukraine would “of course” be involved in talks to end the war, but there would be a separate US-Russian strand to the negotiations. Ukraine and its European allies meanwhile demanded that they be included in any peace negotiations.

The markets took in stride Trump’s oft-promised roadmap for charging reciprocal tariffs on every country that puts duties on US imports, his latest trade salvo directed at American friends and foes.

The dollar pared losses a tad on the tariff headlines and against the yen it was trading at 152.97 yen late in the day, down about 0.9%. The stronger yen in recent weeks has been a negative for the Nikkei but weakness in Asia Thursday was cited as a reason for the index’s 1.28% gain.

Meanwhile, Indian Prime Minister Narendra Modi will meet Trump on Thursday, hoping concessions on tariffs, fresh business deals and the prospect of cooperation on China will win the US president’s favor.

Here are key developments that could provide more direction to markets on Friday:

– South Korea unemployment (Jan)

– Malaysia GDP (Q4)

– US Retail Sales (Jan)

(Editing by Diane Craft)