NEW YORK, Nov 10 (Reuters) – US stocks rose, the dollar slipped and Treasury yields fell on Thursday after a cooler-than-expected October CPI report suggested a spate of rate hikes by the Federal Reserve were beginning to have their intended effect indicates.
All three major US stock indexes rallied sharply after Wednesday’s sell-off, with the benchmark Treasury yield hitting its lowest level in weeks, and the greenback tumbled.
The Labor Department’s consumer price index rose 0.4% last month, in line with September’s rise and far less than the expected 0.6% rise. Year-on-October, CPI rose 7.7% after rising 8.2% in September, the first time annual CPI growth has been below 8% since February. Continue reading
EQUITIES: The Dow is up 2.69%, S&P 500 is up 4.29% and Nasdaq is up 5.87%.
BONDS: The yield on 10-year Treasury bills fell 27.7 basis points to 3.865%; The US 2-year Treasury yield fell 29.8 basis points to 4.330%.
FOREX: The euro recovered against a falling dollar, up 1.36%. The dollar index fell 1.9%
YUNG-YU MA, CHIEF INVESTMENT STRATEGIST, BMO WEALTH MANAGEMENT, CHICAGO
“The better than expected CPI numbers are welcome but show a lot of underlying volatility. Probably the biggest positive factor was that the sharp rise in housing costs contributed to more than half of this month’s CPI rise and should start to moderate by summer of next year. Some other elements that pushed the CPI lower this month, such as falling natural gas prices and medical services, have a good chance of rising in the coming months. And other categories like insurance costs, car maintenance, and even grocery inflation remain stubbornly high. The short-term market reaction may be strong, but this is only one month’s worth of data. Throughout this year, the market has moved from one story to the next. While the October CPI data could help moderate some of the Fed’s trajectory, it would take much longer for the Fed to make an actual dovish turn in the coming months, rather than sticking with its recent ‘higher for longer’ message.”
KING LIP, CHIEF STRATEGIST, BAKER AVENUE ASSET MANAGEMENT, SAN FRANCISCO
“This is a big deal. These are finally some constructive developments on inflation.”
“We’ve been calling peak inflation for the past few months and have just been incredibly frustrated that it’s not showing up in the data. For the first time it has actually appeared in the data.”
“This is a very positive development in the right direction. It may be a little too early to say that this is the end of the bear market. What Powell was saying is that we need a few more reads of good CPI data before he can say we’re done.
MIKE RIDDELL, SENIOR FIXED INCOME PORTFOLIO MANAGER, ALLIANZ GLOBAL INVESTORS, LONDON
“The positioning is always very stretched when trends have been around for a long time. Upon the release of the US CPI data, there was a clear bias for global investors to continue with the trades that have worked for the past 12 months, namely large short interest rate positions, underweight risk assets and long positions in the US Dollar They’re all connected – aggressive central bank rate hikes this year, particularly from the Fed, have pushed US bond yields higher along with the US dollar and put risky assets under pressure.”
“The first major downside surprise in US inflation in a while has forced many of the leveraged trend followers to stop each other. The downward move in the US dollar today is what would be expected given the rally in risky assets based on correlations with bonds and risky assets in recent months.”
“If US inflation continues to come in lower than expected, then the Fed and other central banks have leeway to pause raising rates. If economic growth continues to deteriorate, the Fed may be able to cut rates aggressively next year. A smooth transition into a clipping cycle would be the very worst outcome for the US dollar.”
MIKE ZIGMONT, HEAD OF TRADE AND RESEARCH, HARVEST VOLATILITY MANAGEMENT,
“This is very good news for future Fed policy and shows that what the Fed did was appropriate.”
“It takes the risk off the table that the Fed will have to tighten too tight and the economy will have to collapse.”
BRIAN JACOBSEN, SENIOR INVESTMENT STRATEGIST, ALLSPRING GLOBAL INVESTMENTS, MENOMONEE FALLS, WISCONSIN “Well that was a relief. We’re getting some inflation relief. Inflation is 4.8% annualized, a significant improvement from our previous position. Housing is a major contributor to inflation and everyone should know by now that it is a garbage indicator of where inflation is going. The Fed knows this and can curb rate hikes. Maybe that top federal funds rate doesn’t have to be that high after all.”
LEE HARDMAN, CURRENCY STRATEGIST, MUFG, LONDON
“The CPI report added to the dollar’s sell-off momentum.”
“It gives the market more confidence that there could be a turn in the inflation cycle and the Fed could slow the pace of December rate hikes.”
PAUL NOLTE, PORTFOLIO MANAGER, KINGSVIEW INVESTMENT MANAGEMENT, CHICAGO
“The market thinks it’s wonderful. The focus here really isn’t so much year-on-year. It’s the monthly stepdown. A lot of the areas that we’ve all looked at and said this is going to have an impact is having an impact…a lot of those things are finally starting to work their way into the numbers. And I think the expectation now is that the Fed will hike rates by 50 basis points in December. We have never been to this camp but the expectations were 75.”
ART HOGAN, CHIEF MARKET STRATEGIST, B.RILEY WEALTH, NEW YORK
“A weaker than expected inflation report acts as a tailwind for markets. Each line of the report shows sequential improvement.” “The good news is that we have seen significant sequential improvement, inflation is clearly moving in the right direction. And that keeps a more hawkish Fed in check.”
“We came into this week nervous about the election, but we can check that box now, we know we’ll at least have a gridlock in Washington. Next, we immediately turned our attention to the CPI and it is clearly better than expected. The only potential headwind here has been the significant sell-off in cryptocurrencies, and that also appears to have stabilized somewhat this morning.”
“Also, importantly, initial jobless claims came in higher than expected, so we’re finally seeing some of these layoff announcements from tech companies feeding into the weekly data.”
PETER CARDILLO, CHEF MARKET ECONOM, SPARTAN CAPITAL SECURITIES, NEW YORK
“The key is the core rate. This corresponds to the peak of inflation and as you can see stocks (futures) are reacting in a big way.”
“This is good news and if this continues we are close to a Fed break. This is welcome news.”
“Rate hikes are starting to impact the economy and lower inflation as consumers become more frugal.”
“There’s a chance the Fed will hike (rates) by 50 basis points in December and then pause.”
RYAN DETRICK, CHIEF MARKET STRATEGIST, CARSON GROUP, OMAHA
“Today’s date is a great relief. We saw signs that inflation was starting to rise – used car prices, rents have fallen. But it’s nice to see confirmation in the government data of what we saw today.”
“This opens the door to a likely 50 basis point hike in December and reassures some of the extremely hawkish stance the Fed has had on inflation so far this year.”
ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, FAIRFIELD, CONNECTICUT
“That bodes well for the Fed. The data is surprisingly better than expected. They pushed futures higher and to top it off weekly initial jobless claims came in higher than expected. So it’s all moving in the direction that the Fed wants it to go.”
“Given this data, the Fed would allow the Fed to hike just 50bps instead of 75bps at the next meeting.
I don’t think they would go any lower.”
Compiled by the Global Finance & Markets Breaking News Team
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