Stocks are looking to build on their biggest gain in two-and-a-half years Friday as traders pare bets on big Fed rate hikes and China eases a portion of its strict Covid policies.
U.S. equity futures moved higher again Friday, following on from the biggest single-day gains in more than two years, as loosening Coivd restrictions in China added to market confidence that inflation may have peaked in the world’s largest economy.
A 1,200 point rally for the Dow capped the best day on Wall Street since before the pandemic, as traders reacted to cooler-than-expected inflation data for the month of October that triggered a big change in forecasts for near-term Federal Reserve rate hikes.
October CPI was pegged at 7.7%, firmly south of Street forecasts at the slowest annual gain since January. The reading, which included downward moves in a host of the reading’s sub-components, has not only given rise to hopes of peak inflation, but has also cemented bets on a small Fed rate hike next month in Washington – which comes, coincidently, a day after the scheduled reading of November CPI data.
CME Group futures now suggest an 85.4% chance of a 50 basis point move, snapping a four-meeting run of 75 basis point hikes, with bets of a terminal Fed Funds rate in the region of 4.75% to 5% in the spring now dominating futures trading.
The U.S. dollar index, which tracks the greenback against a basket of six global currency peers, suffered its biggest one-day decline in more than a decade, falling more than 2%, and extended its downward move in early New York trading to change hands at 107.016.
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Benchmark 10-year Treasury note yields were also on the move, falling another 5 basis point to 3.811%, adding to a more than 30 basis point move for the paper since a $35 billion auction earlier this week. Bond market will be closed Friday, however, for its scheduled Veterans’ Day observance.
On Wall Street, futures tied to the S&P 500 are priced for a 16 point opening bell gain following last night’s 5.5% gain, while those linked to the Dow Jones Industrial Average are set to add another 140 points to yesterday’s rally. The tech focused Nasdaq is priced for a 55 point opening bell gain after Thursday’s 7.35% surge.
Elsewhere, bitcoin prices were marked another 1.8% lower at $17,270 each amid concern that FTX, the teetering crypto exchange fronted by Sam Bankman-Fried, could be forced to close its U.S. operations in the coming days amid mounting pressures on its finances and the possible bankruptcy of its global business.
Internal memos show the FTX’s legal counsel Ryne Miller has warned employees that, while the group is working with advisers to form a plan to address the reported $9.4 billion hole in its finances, ‘we should not be optimistic for an outcome that is positive.” The group has also warned that trading could be halted “in the coming days”.
The spillover in broader crypto markets continues, as well, with troubled digital lender BlockFi suspending operations and Bankman-Fried saying he will close the Alameda Research division that he owns. The Securities and Exchange Commission of the Bahamas has also frozen the assets of FTX subsidiary FTX digital.
Overnight news from China that officials in Beijing will loosen at least some of their Covid restrictions, including a shorter period for quarantine and scraping fines for airlines that ferry too many infected passengers, added to the U.S. rate optimism and triggered massive gains for stocks in the Asia region.
The MSCI ex-Japan index was marked 5.58% higher heading into the close of trading, while the Hang Seng index in Hong Kong gained 7.74%.
In Europe, London FTSE fell 0.27% as the pound jumped to 1.1756 against the beaten-down greenback and data showed the U.K. economy slipped into what could be a prolonged recession over the three months ending in September.
The region-wide Stoxx 600, meanwhile, was marked 0.4% higher in early Frankfurt trading.
