Stocks and pound bounce back as US inflation cools: Markets rise in hopes Federal Reserve will slow rate hikes
Global stock markets rose and the dollar slumped after a decline in US inflation fueled hopes for less aggressive Federal Reserve rate hikes.
While official figures showed inflation in the world’s largest economy fell to 7.7 percent last month, the FTSE 100 index gained 1.1 percent while the FTSE 250 rose 3.9 percent.
The rally resonated in the US as the tech-heavy Nasdaq gained 2.7 percent and the S&P 500 rose 4.7 percent on Wall Street.
Equity boost: When US inflation fell to 7.7% last month, the FTSE 100 index gained 1.1% while the FTSE 250 rose 3.9%
The dollar also fell, with the pound rising more than 2 percent to $1.17, its biggest one-day gain since 2017.
The troubled Japanese yen had its best session since 2016, after being pummeled by the rampant dollar for much of the year.
The fall in inflation, from 8.2 percent in September to 7.7 percent last month, the lowest level since January and well below the peak of 9.1 percent in June, raised hopes that the Fed could slow down the pace of interest rate hikes. in the US will slow down.
“Inflation is still too high, but there are indications that the Fed has turned the corner in its struggle and that the pace of future rate hikes will slow,” said Chris Rupkey, chief economist at FWD Bonds in New York.
“The market is on fire and the long-desired rate of inflation is finally starting to emerge.”
The Fed has raised rates this year more sharply than at any time since the 1980s, to between 3.75 and 4 percent.
That’s the highest level since 2008. The gains have sent the dollar soar and stock markets plummet as investors around the world adjust to higher borrowing costs after years of cheap money.
But the dollar has been easing in recent weeks as investors assumed the Fed would slow down soon.
Lee Hardman, a currency strategist at MUFG in London, said the inflation data “reinforced the dollar’s sell-off.”
US technology stocks have been hit particularly hard this year. But yesterday they recovered with Amazon up 11.3 percent, Microsoft up 6.4 percent, Apple up 7 percent, Facebook owner Meta up 10.2 percent and Google parent Alphabet up 7.3 percent.
As an incentive to Prime Minister Rishi Sunak and his Chancellor Jeremy Hunt ahead of the fall statement next week, the cost of government loans around the world also fell.
Ten-year government bond yields – an important measure of how much the government pays to borrow – fell below 3.3 percent and rose above 4.5 percent in the wake of Kwasi Kwarteng’s mini-budget in September.
The Fed is expected to raise interest rates by 0.5 percentage points next month and then 0.25 percentage points to a peak of 4.75 percent to 5 percent — lower than the 5% plus it had estimated before the inflation figures were released. .
But experts warned investors not to get ahead of things.
Danni Hewson of real estate agent AJ Bell said: “Higher prices for things like food and shelter are persistent, and another hike in the price of fuel at the pumps will be a real thrill for American motorists, as well as a visible daily reminder of what’s happening.” with the economy.’
All of these factors could mean the Fed won’t get off the rate hike pedal for a while, she added.