US stocks continued to rise on Friday, while the dollar weakened after cooler-than-expected inflation data for the world’s largest economy fueled speculation that the Federal Reserve would slow the pace of interest rate hikes later this year.
Wall Street’s benchmark S&P 500 gained 0.6 percent in early New York trade after its best day in two and a half years on Thursday, as it rose 5.5 percent. The tech-heavy Nasdaq Composite rose 1.3 percent, consolidating its 7.4 percent gain in the previous session.
The dollar index is up 11.3 percent this year but slipped on Friday as investors scaled back expectations for more aggressive rate hikes in the US. The currency fell 1 percent on the day against a basket of six peers, extending its decline from a late September peak.
“The dollar peak may be behind us, but a dollar downtrend may not be here yet,” said Francesco Pesole, FX Strategist at ING. Fears of a global recession next year could prompt investors to return to an asset widely viewed as a safe haven during times of economic uncertainty, Pesole added.
The moves came after annual US CPI growth came in at 7.7 percent in October, the smallest 12-month rise since January and a sharp decline from an annual rate of 8.2 percent in September.
Markets are now betting that the Fed has around a 70% chance of raising interest rates by 0.5 percentage points when it meets in December, breaking a string of four straight 0.75 percentage point hikes.
However, analysts warned that some investors may be getting ahead of themselves.
“It’s far too early to call the end of the inflationary threat,” said Mark Haefele, chief investment officer at UBS Global Wealth Management, who believes the Fed will raise borrowing costs by another percentage point before starting its “rate-hike cycle.” interrupts”.
Emmanuel Cau, head of European equity strategy at Barclays, warned that core CPI numbers remain “way too high” for central banks to consider easing financial conditions. “Lower inflation is a step in the right direction, but the pace of disinflation remains to be seen,” Cau said.
US Treasury markets, which were closed for Veterans Day on Friday, rebounded sharply immediately after the CPI release. The US two-year Treasury yield fell 0.29 percentage points to 4.33 percent, the biggest daily decline in more than a decade. The yield on the benchmark 10-year Treasury note fell 0.33 percentage points to 3.81% after peaking at 4.25% in October. Yields fall when prices rise.
In Europe, the regional Stoxx 600 rose 0.2 percent, despite the European Commission predicting a sharp drop in German production in the coming months. London’s FTSE 100 fell 0.5 percent, erasing earlier gains, after Britain’s GDP fell 0.6 percent between August and September – a bigger drop than the 0.4 percent forecast by economists.
Meanwhile, Asian stocks ticked higher, trailing indices in the US. Hong Kong’s Hang Seng index rose 7.7 percent, South Korea’s Kospi rose 3.4 percent and China’s CSI 300 rose 2.8 percent.
Commodities rose on Friday after China eased Covid-19 quarantine requirements for close contacts and international travelers and the dollar weakened.
Brent crude, the international oil benchmark, rose 3 percent to trade at $96.45 a barrel. Benchmark three-month contracts for steel ingredients zinc and aluminum led gains in base metals, rising 3.7 percent to just under $3,000 a ton and $2,433 a ton, respectively. Tin rose 5.1 percent to $21,140 a ton.
Additional reporting by Harry Dempsey in London
https://www.ft.com/content/49e94889-5dcc-41ee-8694-8bbd4c43b4de US stocks continue to rise as inflation data boosts investor hopes