US and UK stocks react to latest US inflation data

The selling pressure on NVIDIA Corp (NASDAQ:NVDA) and Tesla Inc (NASDAQ:TSLA) shares eased today after softer-than-expected US inflation figures boosted Wall Street’s hopes for another interest rate cut by June.

The CPI figure for February of 2.8% also offered some respite from the stagflation fears that have intensified since Donald Trump's weekend comments that he’s willing to tolerate a temporary “disturbance” to economic activity alongside higher inflation.

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Having skirted 10% correction territory in yesterday’s session, the S&P 500 index today opened higher before falling back towards its opening mark, while the Nasdaq Composite at least started higher following Monday’s 4% slide.

Source: TradingView. Past performance is not a guide to future performance.

Much of the buying interest focused on the heavily sold Magnificent Seven stocks after a fall of 20%-plus for this grouping of mega-cap stocks since mid-December.

Nvidia, which has shed a fifth of its value since mid-February as traders worried that tariffs could derail demand for its chips, put back 5% in the opening hour of dealings. Other stronger stocks in the sector included Super Micro Computer Inc (NASDAQ:SMCI), Broadcom Inc (NASDAQ:AVGO) and ARM Holdings ADR (NASDAQ:ARM).

Tesla, whose shares have been trading at a comparable price to the end of 2020 following a 50%-plus reverse since December, put back 6% near the start of today’s session.

Among the fallers, Delta Air Lines Inc (NYSE:DAL) and American Airlines Group Inc (NASDAQ:AAL) suffered more heavy losses as it emerged that a 4% month-on-month drop in airline fares was one of the main factors behind today’s lower-than-expected inflation reading.

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Both airline stocks have lost about a fifth of their value this week, having warned of weaker demand as corporate customers react to the recent economic uncertainty. In London, British Airways owner International Consolidated Airlines Group SA (LSE:IAG) has been caught in the sell-off as shares today lost another 12p to 280p.

Source: TradingView. Past performance is not a guide to future performance.

The airlines contributed to a poor session for the Dow Jones Industrial Average, which has now fallen by 7% in the past month as fears mount over the US economic impact of the trade conflict.

Today, the White House imposed 25% US tariffs on steel and aluminium imports, while the European Union retaliated with levies on $28 billion (£21.6 billion) of US goods.

John Kerschner, head of US securitised products at Janus Henderson Investors, expects the market volatility will persist amid ongoing tariff announcements from the White House.

However, he said that investors can take some reassurance that the Federal Reserve’s rate hikes of the past several years are continuing to work by bringing inflation closer to the 2% target.

He added: “While we do not expect the Fed to cut rates at next week’s meeting, today’s data leaves the door open for a cut in May or, more likely, June. Currently, the market is pricing in over a 95% probability of a rate cut by Father’s Day in June.”

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Even though next week’s meeting of the Federal Reserve is set to leave rates on hold, traders are on standby for more volatility in the event of changes to economic projections.

The recent policy measures by the White House have challenged the widely held assumption of a so-called Trump put - the idea that Trump would look at the health of the financial market as an indication of his political success and act accordingly.

UBS Global Wealth Management said today: “We believe risks have increased. But our base case remains that US economic growth can remain resilient, enabling the equity rally to resume - supported by continued heavy investment in artificial intelligence (AI) and progress toward monetisation.

“While we treat the economic data and the words of the Trump administration seriously, enacting and sustaining policies that contribute to a potentially protracted slowdown of the US economy in the hope of better growth or economic dynamics in the medium to long term would require a shift from an approach that has so far focused on achieving quick success.”