World Stocks Surge as U.S. Inflation Data Eases Rate Hike Concerns
World stocks experienced a significant surge on Tuesday following the release of U.S. inflation data that came in cooler than expected for the month of October. This unexpected development has fueled investor speculation that the era of interest rate hikes may be over, and there is now even the possibility of borrowing costs beginning to fall.
The data revealed that U.S. consumer prices remained unchanged in October, primarily due to lower gasoline prices. Underlying inflation also indicated signs of slowing, with the Consumer Price Index (CPI) increasing by 0.2% after excluding volatile food and energy components. This gain was slightly lower than the expected 0.3% increase predicted by analysts polled by Reuters.
By 12:02 p.m. ET (1702 GMT), the MSCI World Equity index had surged by a remarkable 2%, marking its best day in approximately a year. This upward trend was mirrored across Wall Street, as the S&P 500 index increased by 1.9%, the Dow Jones Industrial Average jumped by 1.5%, and the Nasdaq Composite Index bounded by 2.2%, potentially on track for its strongest day in around six months.
Brian Jacobsen, Chief Economist at Annex Wealth Management in Wisconsin, stated, “You can say goodbye to the rate hiking era,” emphasizing that investors now shift their focus to predicting when U.S. Federal Reserve policymakers, led by Chair Jerome Powell, might begin cutting rates. Jacobsen further explained, “If the Powell Pause began in July, we’ll have to see how long he can hold rates here. In the soft landing of 1994-1995, the pause only lasted five months.”
However, Powell and other policymakers had previously expressed uncertainty regarding whether interest rates were high enough to control inflation, even before the release of the latest U.S. inflation data.
In response to the benign U.S. inflation report, the pan-European STOXX 600 also experienced a significant jump, rising by 1.3%. Additionally, Treasury yields dropped in line with expectations that U.S. rates may have peaked. Two-year yields, which reflect interest rate expectations, reached a two-week low of 4.8423%, while the benchmark 10-year yield fell to 4.4320%, a low that has not been seen in almost eight weeks.
The weakening of the dollar provided some relief for the yen, which has been lingering near its lowest level against the dollar in three decades. The yen managed to recover slightly from Monday’s 151.92, hovering around 150.73. Frederik Ducrozet, Macroeconomics Chief at Pictet Wealth Management, stated, “We expect the Bank of Japan to move very, very gradually out of yield curve control and eventually out of negative rate policy, but this is unlikely to happen anytime soon.” Ducrozet added that, for now, the pair is more likely to be influenced by any factors that impact the dollar.
Euro zone government bond yields were also down, with the benchmark 10-year German yield reaching 2.604%.
In other news, official data released on Tuesday revealed that wages in Britain grew slightly less quickly in the three months leading up to September. This comes after a period of record-paced wage growth, prompting the Bank of England to remain vigilant regarding potential inflationary pressures.
Moreover, a new estimate confirmed that the euro zone economy contracted marginally quarter-on-quarter in the third quarter. This further reinforces expectations of a technical recession if the fourth quarter proves similarly weak, although employment figures still demonstrated growth.
Oil prices increased by approximately 70 cents following an upward adjustment in demand growth forecasts by the International Energy Agency (IEA). This positive sentiment was further reinforced by OPEC’s guidance from the previous day. As a result, Brent crude futures reached $83.21 a barrel, while WTI crude futures stood at $78.91.
Overall, the unexpected cooler U.S. inflation data has had a significant impact on global stock markets, leading to a surge in investor confidence. While concerns about inflation and interest rates are easing, the long-term implications of these developments remain uncertain.
More detail via Yahoo! Finance here… ( Image via Yahoo! Finance )