A notable slowdown in October inflation pressures has stocks trading sharply higher and bets on smaller Fed rate hikes surging heading into the start of the Thursday session.
Updated at 9:02 am EST
U.S. equity futures surged higher Thursday, while Treasury yields tumbled and the dollar retreated sharply against its global peers, as investors reacted to a surprise cooling of broader inflation pressures that more than offset concerns of contagion from the potential multi-billion dollar collapse of the FTX exchange.
The Bureau of Labor Statistics said headline inflation for the month of October fell to an annual rate of 7.7%, down from the 8.2% pace recorded in September and the 8.0% Street forecast.
So-called core inflation, which strips-out volatile components such as food and energy prices, rose 0.3% on the month, and 6.3% on the year, the report noted, with both the annual and monthly reading coming firmly below Street forecasts.
The softer-than-expected reading added to downward pressure on Treasury bond yields, with 10-year notes falling 10 basis points to 3.925% in the immediate wake of the data release, with bets on the chances of a 50 basis point rate hike next month from the Federal Reserve soaring to around 80%. The U.S. dollar index, which tracks the greenback against a basket of its global peers, fell 0.75% to 109.73.
On Wall Street, U.S. stocks reacted sharply to the softer-than-expected readings, with futures tied to the S&P 500 price for a 117 point opening bell gain while those linked to the Dow Jones Industrial Average were priced for a 765 point surge. Futures tied to the tech-focused Nasdaq were priced for a 450 point rally.
The CPI data helped soften the impact of the near-term bankruptcy of FTX, the struggling crypto exchange, amid reports of investigations from federal authorities — including the Department of Justice — and concerns that contagion could spill-over into the mainstream financial markets over the coming weeks as investors extract leverage and exposure to the increasingly volatile sector.
Stocks Edge Higher, Inflation Data, FTX, Apple And Rivian In Focus – Five Things To Know
Investors are also tacking the slow-moving process of tabulating results from Tuesday’s mid-term elections, which now look set to deliver a narrow Republican majority in the House — where GOP lawmakers have secured at least 210 seats — and a run-off in Georgia on December 6 between Democrat Raphael Warnock and Republican challenger Herschel Walker that will decide the fate of the Senate.
“The picture in the US, however, still remains a little uncertain following the midterms on Tuesday. We are still awaiting the outcome of the Senate race, and while the Republicans are likely to take control of the House of Representatives, it has been far from the ‘red wave’ that was being spoken about in the run up,” said Stuart Clark, portfolio manager at Quilter Investors. As a result, while it might be more difficult for the Biden administration to provide any further support or relief from inflation, it won’t be impossible.”
In terms of individual stocks, Tesla (TSLA) – Get Free Report shares extended declines after Wedbush analyst Dan Ives, a long-time supporter of the stock, removed the electric carmaker from his ‘best ideas’ list citing what he called the “albatross” of Elon Musk’s $44 billion takeover of Twitter.
Apple (AAPL) – Get Free Report shares were also active, rising 3.5% even after its key supplier Foxconn said it will adjust its production capacity in China and elsewhere to ensure that Covid-linked shutdowns have a minimal impact on its holiday quarter revenue forecasts.
Overnight in China, news of another surge in Covid infections, despite the country’s strict policies, rattled investors once again as the number of confirmed cases rose to the highest levels since April and spread more broadly across the country’s industrial base in the southeast.
In overseas markets, China stocks extended declines for a third consecutive session the back of accelerating Covid infections, while the region-side MSCI ex-Japan index was marked 1.43% lower heading into the close of trading.
In Europe, the Stoxx 600 fell 0.15% as it tracked U.S. equity futures while Britain’s FTSE 100 was marked 0.17% lower in the opening hours of trading in London.
