Another data raid, the global market completely exploded
Global markets rebounded! During the European trading session on Wednesday (November 15), the latest data showed that British inflation has cooled down. Superimposed on yesterday’s US CPI inflation, the market is more confident about the end of global central bank interest rate hikes. Risk assets exploded. European and American stock markets continued to rebound, and the US dollar plummeted. Later it stabilized and gold rose above the 1970 mark. The market will focus on U.S. retail sales and producer price index today.
Investors welcomed lower-than-expected inflation data from the United States and the United Kingdom as evidence that central banks may end their aggressive rate hikes. Stock markets rise.
The Stoxx Europe 600 index was higher, led by gains in consumer products and mining stocks. Shares in French train maker Alstom fell 14% after the company said it would cut jobs and sell assets to improve its balance sheet.
France’s CAC 40 index rose 0.5% to 7221.25 points in early trading. Germany’s DAX rose 0.2% to 15,644.95 points, while Britain’s FTSE 100 surged 1.0% to 7,515.58 points.
U.S. stock futures were poised for further gains, with Dow futures up 0.2% and S&P 500 futures up 0.3%. The S&P 500 index closed on Tuesday with its biggest gain since April.
Earlier in the day, MSCI’s Asia-Pacific index jumped more than 2%, with all markets higher.
A much-anticipated U.S. inflation report showed overall price growth slowed last month, raising the possibility that the Federal Reserve may avoid further interest rate hikes.
Stocks rebounded in November, with the S&P 500 up more than 7% in November and on track for its best monthly performance since October 2022 as investors bet the Federal Reserve would not raise interest rates. Tesla Inc led gains among large-cap stocks on Tuesday, while Nvidia Corp posted its 10th consecutive session of gains.
UK inflation data adds icing on the cake
Sterling fell after British inflation slowed more than economists expected, similar to U.S. price data released on Tuesday, bolstering optimism that the Bank of England may end its interest rate hikes like the Federal Reserve.
Data show that the UK Consumer Price Index (CPI) was flat month-on-month in October, with an expected increase of 0.1%; it rose 4.6% year-on-year, with an expected increase of 4.8%, and a 6.7% increase in the previous month. France’s CPI rose 0.1% month-on-month and 4% year-on-year in October, both in line with expectations.
Prior to this, data released by the U.S. Department of Labor showed that the U.S. Consumer Price Index (CPI) dropped to 3.2% year-on-year in October from 3.7% last month, which was lower than market expectations of 3.3%; it was unchanged month-on-month and was the same as in July 2022 smallest increase since. At the same time, the core CPI excluding food and energy fell to 4.0% year-on-year from 4.1% last month, lower than the 4.1% previously expected by the market; it rose 0.2% month-on-month, which was also the smallest increase since July this year.
Ian Lyngen, an analyst at the Bank of Montreal, said that this CPI report is good news for the Federal Reserve. It proves that monetary policy is still effective and the impact on the real economy is lagging. “This rules out a December rate hike and reinforces our view that the July rate hike is the last of this cycle, with cycle focus turning to how long into the future the Fed will try to delay rate cuts.”
The U.S. inflation data for October released on Tuesday was lower than expected, prompting the Bank of America to change its expectations for further interest rate hikes by the Federal Reserve, believing that the interest rate hike cycle has ended. Bank of America said on Tuesday that the report was “the final straw in the interest rate hike cycle.” Before this week, the bank had argued that Fed officials were leaning toward not raising interest rates in December, but it was taking a “wait-and-see” approach to the upcoming data. From Bank of America’s perspective, Tuesday’s dovish data confirmed that forecast.
“As a result, we have changed our forecasts for the Fed,” Bank of America strategists said. “We now believe the rate hike cycle is over. Markets agree: as we write this, they see less than a 10% chance of another rate hike.”
Fed swaps show the likelihood of another rate hike has dropped to almost zero – with markets pricing in a 50 basis point cut by July.
Global indexes tracking more than $61 trillion were higher as U.S. inflation data prompted traders to cancel bets on further interest rate hikes by the Federal Reserve and increase bets on lower borrowing costs. The weak data further suggested that the sharpest tightening cycle in a generation would slow the global economy and push central banks to cut interest rates in 2024.
Fed officials welcomed the latest data showing a slowdown in inflation, while adding that it was still a long way from reaching the central bank’s 2% target.
Attention will then turn to Wednesday’s U.S. retail sales and producer price reports. Strong economic data may temper some enthusiasm for a rate cut by the Federal Reserve.
“All (rate hikes) are over. That seems to be the market’s main takeaway after yesterday’s weak U.S. CPI report,” said Evelyne Gomez-Liechti, rates strategist at Mizuho International. “The focus now is on U.S. retail sales and PPI data.”
Bond market nearly recovers losses
Optimism about weaker-than-expected U.S. inflation data also pushed global bonds close to erasing losses for the year.
The Bloomberg Global Aggregate Bond Index rose 1.3% on Tuesday, its biggest one-day gain since March this year. The index fell 3.8% on the year less than a month ago and is now down just 0.3% in 2023.
U.S. Treasuries stabilized after sharp gains on Tuesday. The 10-year Treasury yield was essentially flat after plunging 19 basis points in the previous session.
In the currency market, the U.S. dollar was flat, having fallen 1.2% yesterday, its largest one-day drop in a year.
The U.S. dollar was generally lower on Wednesday, barely trading above the 104 mark. Traders reacted quickly to changes in market prices, with the dollar plunging 1.5% against major currencies overnight.
Elsewhere, oil prices stabilized after a brief rebound as the market digested divergent views on the supply and demand outlook. Gold prices edged higher.