US stocks roar higher as yields sink on soft CPI: Markets fold

(Bloomberg) — U.S. stocks posted their biggest gain in two years and bonds rallied after data showing prices rose more slowly than forecast fueled bets that the Federal Reserve may scale back its aggressive of tightening efforts.

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The S&P 500 rallied 4%, poised for its best first-day reaction to a CPI report since 2008. Gains in the tech-heavy Nasdaq 100 topped 5%.

Bonds soared, sending the yield on two-year notes, more sensitive to monetary policy, below 25 basis points. Currency traders are hedging bets on Fed hikes, with exchanges now showing that a 50 basis point hike in December is much more likely than a 75 basis point move.

Investors may see 7.7% as the latest evidence of a peak in consumer price growth, with the possibility of an end to rate hikes. The report also showed that the consumer price index came in lower than expected on a monthly basis as well as in its core reading.

“The first negative inflation surprise in several months will inevitably be met with an equity market applause,” wrote Seema Shah, head of global strategy at Principal Asset Management. A rise of 0.5%, rather than 0.75%, in December is clearly on the cards but, until we get a series of these types of CPI reports, a pause is still some way out.”

US inflation slows more than forecast, gives Fed room to taper

Philadelphia Fed President Patrick Harker said he expects the central bank to slow the pace of rate hikes in the coming months as US monetary policy approaches restrictive levels. But he noted Thursday in the text of his remarks to the Philadelphia chapter of the Risk Management Association, “an increase of 50 basis points would still be significant.”

Fed officials see reason to slow rate hike soon

More comments on the CPI report, markets

  • “Today’s CPI report showed some modest improvement as some of the previously elevated too-high inflation, such as used cars, began to decline at a faster pace,” said Rick Rieder, head of global fixed income investments at BlackRock Financial Management Inc. .

  • “Inflation is still well above the Fed’s 2% target and we believe the Fed will keep its word and continue to raise interest rates,” wrote Michael Landsberg, chief investment officer, Landsberg Bennett Private Wealth Management. “We are preparing for an environment where interest rates remain higher for a longer period of time. Investors should be more concerned about the effect of rising interest rates in a slowing economy on their portfolio values ​​than the current level of inflation.”

Key events this week:

  • Fed officials Lorie Logan, Esther George, Loretta Mester speak at events, Thursday

  • US University of Michigan Consumer Sentiment, Friday

Some of the main movements in the markets:

inventories

  • The S&P 500 was up 4% at 10:15 a.m. New York time

  • Nasdaq 100 rose 5.6%

  • The Dow Jones Industrial Average rose 2.5%

  • The Stoxx Europe 600 rose 2.7%

  • MSCI World index rose 3.4%

currency

  • The Bloomberg Dollar Spot Index fell 1.6%

  • The euro gained 1.4% to $1.0152

  • The British pound rose 2.6% to $1.1654

  • The Japanese yen rose 3% to 142.02 yen per dollar

Cryptocurrencies

  • Bitcoin rose 13% to $17,711.53

  • Ether rose 21% to $1,332.73

Bindings

  • The 10-year bond yield fell 24 basis points to 3.86%

  • Germany’s 10-year yield fell 17 basis points to 2.00%

  • Britain’s 10-year yield fell 16 basis points to 3.30%

Goods

  • West Texas Intermediate crude was little changed

  • Gold futures rose 2% to $1,747.80 an ounce

This story was created with help from Bloomberg Automation.

–With help from Richard Henderson, Srinivasan Sivabalan, Isabelle Lee and Vildana Hajric.

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