Miners lead ASX higher after federal budget

Several “meme” stocks, including GameStop and AMC Entertainment, raced higher in a reprise of the social-media driven frenzy of three years ago. GameStop jumped 60.1 per cent and AMC rose 32 per cent. Both stocks gave back much of their gains from earlier in the day.

An update on inflation showed that prices remain stubbornly high at the wholesale level, before many price changes are passed along to consumers. The latest producer price index showed that inflation rose sharply in April. The report also included a revision lower for the March reading. The report is the first of two big inflation updates this week that are being closely watched by Wall Street.

“Inflation pressures in the US economy are still substantial and the momentum that built up over the last few years is still rolling along,” said Bill Adams, chief economist for Comerica Bank. “At the margin the Fed will see the April PPI report as another reason to slow-roll interest rate cuts.”

Bond yields edged lower. The yield on the 10-year Treasury slipped to 4.45 per cent from 4.49 per cent late Monday. The yield on the two-year Treasury, which more closely tracks expectations for actions by the Federal Reserve, fell to 4.82 per cent from 4.86 per cent.

The bigger test for markets comes Wednesday, when the US releases its monthly update on consumer prices, or inflation faced by households. Economists expect the consumer price index to ease to 3.4 per cent in April on a year-over-year basis. The rate of inflation has been ticking higher in 2024, raising concerns that the Fed could have a hard time taming inflation to the central bank’s goal of 2 per cent.

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Investors have been curtailing their expectations for the speed and frequency of interest rate cuts this year as inflation remains hotter than expected. Traders are betting on one or two rate cuts this year, according to data from CME Group.

Wall Street is still hoping the Fed can pull off its “soft landing,” where high interest rates work to cool inflation without slowing the economy into a recession.

Fed Chair Jerome Powell, at a panel discussion in Amsterdam on Tuesday, reaffirmed that the central bank won’t likely raise its key interest rate to respond to stubborn inflation. He also said that his confidence that inflation will ease is “not as high as it was” because price increases have been persistently hot in the first three months of this year.

With AP