US stocks rose and Treasuries surged on Thursday after closely watched October inflation data came in less than expected, paving the way for an interest rate hike by the Federal Reserve.
Wall Street’s benchmark S&P 500 added 4.3 percent in the New York afternoon, while the heavyweight Nasdaq Composite jumped 5.8 percent.
In government bond markets, the yield on two-year Treasuries, which are particularly sensitive to interest rate movements, fell 0.3 percentage point to 4.32 percent. The yield on the 10-year Treasury fell 0.28 percentage point to 3.86 per cent. Yields decrease when prices rise.
The recovery in the markets came after the US CPI reading for October came in at 7.7 percent, marking the smallest 12-month increase since January and a sharp drop in the annual rate of inflation of 8.2 percent in September. Economists had expected an 8 percent increase.
The core CPI reading, which excludes food and energy prices, fell at 6.3 percent on an annual basis, below expectations of 6.5 percent and September’s reading of 6.6 percent.
The dollar fell immediately after the CPI report, falling 1.4 percent against a basket of six peers.
The lower-than-expected readings ease pressure on the Federal Reserve to maintain its policy of sharp interest rate increases to combat inflation. The central bank has made four consecutive gains of 0.75 percentage points this year to slow price growth.
Federal Reserve Chairman Jay Powell indicated earlier this month that the central bank would do so slow down the monetary tightening But reaching a final rate higher than expected.
Former US Treasury Secretary Lawrence Summers said earlier this week that the final interest rate could reach “6 [per cent] Or more.” But markets now expect the Fed’s benchmark interest rate to peak at around 4.8 percent in May 2023, having previously forecast a peak of just over 5 percent in June.
Jim Poulsen, chief investment analyst at the Leuthold Group, said the CPI numbers “will be a catalyst, and I think we’ll have a nice rally in the market through the end of the year.”
“The fact that the Fed could be slowing from here means that what could erupt is a conversation about not just recession and not inflation, but a conversation about possibly avoiding a recession entirely,” Paulsen said. “Maybe we will have a smooth landing.”
Analysts at JPMorgan said the latest CPI numbers support the view that an “appropriate amount of inflation” over the past year “will prove to be temporary or temporary,” reviving a word that Powell scoffed at using to describe inflation this time last year. .
Traders are also assessing the upcoming results of this week’s midterm elections. A day after polls closed, elections were not called in multiple states, leaving control of both the Senate and the House of Representatives in the air. However, analysts said that the Republican Party’s performance so far has already been It undermined polls’ expectations of a “red wave” in both legislatures.
In Asia on Thursday, Japan’s Topix fell 0.7 percent, Hong Kong’s Hang Seng fell 1.7 percent, and China’s CSI 300 index of shares listed in Shanghai and Shenzhen fell 0.7 percent.
The European Stoxx 600 Index added 2.7 per cent and the London FTSE Index rose 1.1 per cent.
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