Stocks soar after inflation data is colder than expected

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US stocks rallied during the week as a weaker-than-expected rise in inflation fueled bets that the Federal Reserve will soon reverse its aggressive monetary tightening.

The S&P 500 index jumped 5.9% in the five-day period for its best week since late June and closed Friday at 3,993. The Nasdaq composite index jumped 8.1% on the week and the Dow Jones industrial average gained 4.1%.

Consumer price index data for October rose 7.7% from a year earlier, the smallest annual rise since the start of the year and well below the 7.9% forecast by economists. Core prices, which are considered a better underlying indicator of inflation, fell from a 40-year high with a 6.3% gain. The data bolstered bets on a 50 basis point Fed hike in December and spurred the biggest one-day stock market rally in more than two years on Thursday.

“Markets across the board are euphoric after the cooler CPI release,” said Quincy Krosby, chief global strategist for LPL Financial. “But the report, while indicating that inflation is moving in the right direction, does not suggest that inflation has been rooted out of the broader economy.”

Friday’s survey from the University of Michigan found that both short-term and long-term consumer expectations rose in early November. Afterwards, Boston Fed President Susan M. Collins said the central bank still had work to do to get inflation under control, but “the risk of excessive tightening has increased.”

The prospect of slower Fed tightening sent 10-year Treasury yields falling the most since early March on a weekly basis. Bloomberg’s gauge of US dollar strength has plunged the most in 13 years.

Sam Bankman-Fried’s empire filed for bankruptcy on Friday, marking the downfall of one of crypto’s richest and most influential tycoons. The turmoil began when CoinDesk revealed that Bankman-Fried trading house Alameda Research was holding a lot of FTT, the utility token issued by its exchange, FTX.com. Binance CEO Zhao Changpeng then tweeted that his exchange would liquidate its FTT holdings, prompting a large selloff of all cryptocurrencies.

Earnings season is coming to an end, with Target, Walmart, Macy’s and TJX, the parent company of TJ Maxx and Marshalls, reporting this week. Retail sales data due Wednesday is expected to show 1% growth in consumer spending in October, according to a Bloomberg survey of economists.

The Treasury will sell 13 and 26 week notes on Monday. They returned 4.221% and 4.557% respectively in trading when they were released. It will also auction four- and eight-week Treasuries, as well as 10-year inflation-protected Treasuries on Thursday.


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