The dollar came under pressure against other currencies after investors began betting on a series of Federal Reserve interest rate cuts next year
London (AFP) - Stock markets rose further Wednesday after slowing US inflation dampened expectations of more interest rate hikes, with some traders even betting on cuts next year.
Wall Street opened higher Wednesday after some indices Tuesday had their best increases in six months, lifted by investors betting that more than a year of painful tightening may have finally come to an end.
Stocks were also boosted by better-than-expected results from bellwether retailer Target. A small 0.1 percent decline in US retail sales in October further helped underpin expectations of a soft landing for the economy.
“We’re in a bull market until recession signals emerge, and that hasn’t happened yet,” said Callie Cox, investment analyst at eToro. “Spending is strong and inflation is coming under control.”
Meanwhile, US Treasury yields sank for a second day.
The consumer price index’s 3.2 percent rise in October was well down from 3.7 percent the previous month and a 0.1-percentage-point below market expectations. Core inflation was also below estimates.
Several Fed officials have lined up in recent months to warn that while inflation has come down from the multi-decade peaks of last year, it remained too high to give up on their rate-hike campaign for fear of prices reflating.
“Investors seem to like the report as it helps the narrative that the Fed is done hiking,” said Jonathan Boyar, managing director at Boyar Asset Management in New York.
It “gives credence to the argument that inflation is starting to be tamed. However, investors should remember there have been an number of false starts.”
But the latest figures will embolden those investors who are sceptical that the central bank will act on any hawkish instincts for fear of tipping the economy into recession.
Data suggests they are now betting on as much as a one-percentage-point cut in rates through next year.
Jamie Dimon, the head of JPMorgan Chase, said that while Tuesday’s figures were good, he thought inflation was a little more sticky than they showed.
“I still think you should prepare (for the fact the Fed) may need to do a little bit more,” he told Bloomberg.
- ‘Welcome decline -
London extended Tuesday’s rally after data showed UK inflation slowed sharply in October. The CPI hit 4.6 percent, well down from 6.7 percent in September and also slightly better than expectations.
The pound weakened against the dollar, paring the gains enjoyed after the US inflation reading.
“The decline in prices will be welcomed by (Prime Minister) Rishi Sunak who had pledged to halve inflation by the end of 2023,” said Richard Flax, chief investment officer at Moneyfarm.
“The October figure still leaves inflation well above the Bank of England’s two percent target and while we’d expect inflation to continue to decelerate from here, that two percent figure represents a challenge in an economy where wages are still rising above seven percent,” he said.
The dollar was little changed against most other units after slumping Tuesday, and it recovered some of its losses against the yen on news that Japan’s economy shrank more than forecast in the third quarter.
The greenback has lost almost two cents against the euro this week, and has also dropped significantly against the South Korean won, Australian dollar and South African rand.
- Key figures around 1445 GMT -
New York - Dow: UP 0.2 percent at 34,902.70 points
London - FTSE 100: UP 0.7 percent at 7,494.10
Paris - CAC 40: UP 0.4 percent at 7,210.50
Frankfurt - DAX: UP 0.7 percent at 15,718.87
Tokyo - Nikkei 225: UP 2.5 percent at 33,519.70 (close)
Hong Kong - Hang Seng Index: UP 3.9 percent at 18,079.00 (close)
Shanghai - Composite: UP 0.6 percent at 3,072.83 (close)
Dollar/yen: UP at 150.93 from 150.37 yen on Tuesday
Pound/dollar: DOWN at $1.2445 from $1.2496
Euro/dollar: DOWN at $1.0852 from $1.0880
Euro/pound: UP at 87.21 pence from 87.05 pence
West Texas Intermediate: DOWN 1.25 percent at $77.28 per barrel
Brent North Sea crude: DOWN 1.0 percent at $81.64 per barrel