US inflation data topped investors' list of economic releases this week
London (AFP) - Stock markets rose strongly Tuesday as a key measure of US inflation slowed more than expected, raising hopes the Federal Reserve is done raising rates for the moment.
The US consumer price index (CPI) increased by 3.2 percent in the 12 months to October, down from 3.7 percent a month earlier, the Labor Department said in a statement.
Analysts had been expecting an increase of about 3.3 percent.
The moderating outlook for inflation sent both bond yields and the dollar lower, with the greenback now at its weakest level against the euro in two months.
Markets reacted positively as the Dow was up 1.7 percent two hours into trading on Wall Street while the tech-heavy Nasdaq advanced two percent.
Paris and Frankfurt closed around one-and-a-half percent in the green with London adding a more modest 0.2 percent.
The “market now says ‘no more hikes’,” said Neil Wilson, chief market analyst at Markets.com. “This may be premature, but the market has moved sharply to say that the Fed is now done.”
Craig Erlam, senior market analyst at Oanda, concurred, saying that “today potentially lays the groundwork for the Fed to adopt a much less hawkish position - especially compared with September - and markets are now seemingly convinced the tightening cycle is over.
While down sharply since the start of the year, annual inflation remains well above the Fed’s two-percent target.
The Federal Reserve recently held its key lending rate at a 22-year high for a second consecutive meeting, leading some analysts and traders to predict it was done tightening monetary policy in order to avoid tipping the economy into recession.
But since then, a number of policymakers, including Fed Chair Jerome Powell, have indicated that they are prepared to hike rates again, if necessary, to bring price increases firmly down to target.
A number of upcoming speeches by Fed decision-makers will now be pored over in light of the latest inflation numbers.
“The softer CPI inflation data mean the market will have a harder time absorbing hawkish rhetoric from the Fed,” said Jane Foley, head of foreign exchange strategy at Rabobank in London.
“Without further upside shocks to inflation, policymakers will have a hard time steering the market away from talk of rate cuts in 2024.”
London’s FTSE-100 index lagged its counterparts after official data showed UK wages rose faster than inflation, reigniting concerns that British interest rates could remain at multi-year highs for longer than thought, or even increase further.
Official data, however, is expected to reveal on Wednesday a sharp fall in British annual inflation.
Meanwhile, there are hopes that this week’s upcoming meeting between US President Joe Biden and Chinese leader Xi Jinping could ease tensions between the economic superpowers, further comforting the markets.
- Key figures around 1645 GMT -
New York - Dow: UP 1.7 percent at 34,912.69 points
London - FTSE 100: UP 0.2 percent at 7,440.47 (close)
Paris - CAC 40: UP 1.4 percent at 7,185.68 (close)
Frankfurt - DAX: UP 1.8 percent at 15,614.43 (close)
EURO STOXX 50: UP 1.5 percent at 4,296.49
Tokyo - Nikkei 225: UP 0.3 percent at 32,695.93 (close)
Hong Kong - Hang Seng Index: DOWN 0.2 percent at 17,396.86 (close)
Shanghai - Composite: UP 0.3 percent at 3,056.07 (close)
Euro/dollar: UP at $1.0861 from $1.0701 on Monday
Dollar/yen: DOWN at 150.74 from 151.71 yen
Pound/dollar: UP at $1.2479 from $1.2280
Euro/pound: DOWN at 87.01 pence from 87.12 pence
Brent North Sea crude: UP 1.7 percent at $83.92 per barrel
West Texas Intermediate: UP 1.8 percent at $79.70 per barrel