(Bloomberg) — US stocks surged by the most in two years and Treasuries rallied after data showing prices rose slower than forecast fueled bets the Federal Reserve can dial back its aggressive tightening efforts.
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The S&P 500 rallied 4%, poised for the best first-day reaction to a CPI report since 2008. Gains in the tech-heavy Nasdaq 100 topped 5%.
Treasuries soared across the board, sending the rate on two-year notes, more sensitive to monetary policy, down 25 basis points. Rates traders pared bets on Fed hikes, with swaps indicating now that a 50-basis-point increase in December is far more likely than a 75-basis-point move.
Investors may treat the 7.7% headline figure as the latest evidence of peaking consumer-price growth, with potential to usher in an end to interest-rate hikes. The report also showed the consumer-price index coming in softer than expected on a month-on-month basis as well as in its core reading.
“The first downside surprise in inflation in several months will inevitably be received by an equity market ovation,” Seema Shah, chief global strategist at Principal Asset Management, wrote. A 0.5% hike, rather than 0.75%, in December is clearly on the cards but, until we have had a run of these types of CPI reports, a pause is still some way out.”
US Inflation Slows More Than Forecast, Gives Fed Downshift Room
Philadelphia Fed President Patrick Harker said he expects the central bank to slow the pace of interest-rate hikes in upcoming months as US monetary policy approaches restrictive levels. But, he noted Thursday in the text of his remarks to the Risk Management Association’s Philadelphia chapter, a “ hike of 50 basis points would still be significant.”
Fed Officials See Grounds for Soon Slowing Rate-Hike Pace
More commentary on CPI report, markets
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“Today’s CPI report showed some moderate improvement as some of the previously elevated excessively high inflation-drivers, such as used cars, started to decline at a faster pace,” said Rick Rieder, chief investment officer of global fixed income at BlackRock Financial Management Inc.
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“Inflation is still way above the Fed’s 2% target and we believe the Fed will keep their word and continue to raise interest rates,” Michael Landsberg, chief investment officer, Landsberg Bennett Private Wealth Management, wrote. “We are preparing for an environment where interest rates remain higher for longer. Investors should be more concerned with the effect that rising rates into a decelerating economy has on their portfolio values rather than the current level of inflation.”
Key events this week:
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Fed officials Lorie Logan, Esther George, Loretta Mester speak at events, Thursday
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US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 rose 4% as of 10:15 a.m. New York time
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The Nasdaq 100 rose 5.6%
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The Dow Jones Industrial Average rose 2.5%
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The Stoxx Europe 600 rose 2.7%
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The MSCI World index rose 3.4%
Currencies
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The Bloomberg Dollar Spot Index fell 1.6%
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The euro rose 1.4% to $1.0152
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The British pound rose 2.6% to $1.1654
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The Japanese yen rose 3% to 142.02 per dollar
Cryptocurrencies
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Bitcoin rose 13% to $17,711.53
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Ether rose 21% to $1,332.73
Bonds
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The yield on 10-year Treasuries declined 24 basis points to 3.86%
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Germany’s 10-year yield declined 17 basis points to 2.00%
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Britain’s 10-year yield declined 16 basis points to 3.30%
Commodities
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West Texas Intermediate crude was little changed
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Gold futures rose 2% to $1,747.80 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson, Srinivasan Sivabalan, Isabelle Lee and Vildana Hajric.
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