Stocks rallied while the dollar slumped against rival currencies yesterday after news of lower United States inflation dimmed expectations of more aggressive Federal Reserve rate hikes.
The consumer price index (CPI), a key measure of inflation, rose at an annual pace of 7.7 per cent in October.
That was below analyst expectations and a dip from the 8.2 per cent rate recorded in September.
The dollar plunged more than 4 per cent against the yen, while the pound jumped 3.2 per cent against the greenback and the euro rose 2 per cent.
Meanwhile, Wall Street stocks surged, with the Dow ending 3.7 per cent higher with a nearly 1,200-point jump.
The broader S&P 500 jumped 5.5 per cent and the tech-heavy Nasdaq Composite index soared 7.4 per cent.
“I don’t recall having ever seeing the Nasdaq being up 7 per cent ever, (and) I’ve been watching the markets for over 50 years,” Peter Cardillo of Spartan Capital Securities told AFP.
“Inflation has finally started to drop like a rock in the US and this is the best news that anyone can expect,” added AvaTrade analyst Naeem Aslam.
He expects that the Fed will still continue with rate hikes, though at a slower pace.
The Fed’s benchmark lending rate currently stands at between 3.75 to 4.0 per cent, the highest since January 2008.
Investors have been keenly watching for signs that Fed policymakers will pivot away from their aggressive 0.75 percentage point hikes or pause them altogether.
Matt Weller at StoneX said that after the softer inflation reading, traders are now pricing in an 80 per cent chance that the Fed will shift down to a 0.50 percentage point interest rate hike and now see rates peaking below 5.0 per cent.
“There’s optimism that the worst of the selling may be behind us,” on equity markets, which are down heavily this year.
Markets are grappling also with the impact of strict zero-COVID measures in China, with supply chains and activity slowed by harsh lockdowns and testing policies.
“China’s domestic demand is weak and their key trading partners are entering recession territory,” said Edward Moya at trading group OANDA.
The crypto world has meanwhile been rocked by a surprise decision from Binance – the world’s biggest cryptocurrency platform – to scrap a possible acquisition of rival FTX.com a day after disclosing it had signed a non-binding letter of intent to buy it.
The near-collapse of FTX has plunged Bitcoin to a two-year low.
“FTX’s slump from over a US$32 billion valuation to zero in less than a few days raises numerous issues,” said Stephen Innes at SPI Asset Management.
“Prominent investors are wearing eggs on their faces after diving in head first.”
He added that gold and silver would be the biggest beneficiaries of the crypto fallout, with investors looking to the trusted precious metals for stability.