By Stephen Culp
NEW YORK (Reuters) -U.S. stocks surged, the dollar slid and Treasury yields dropped as cooler-than-expected inflation data suggested the Federal Reserve’s barrage of interest rate hikes are beginning to have their intended effect.
All three major U.S. stock indexes rebounded sharply on the heels of Wednesday’s sell-off, and the benchmark Treasury yield touched its lowest level in weeks and the greenback plunged.
The consumer price index (CPI) showed the prices urban U.S. consumers pay for a basket of items cooled down in October, a welcome indication that the buckets of cold water the Federal Reserve has been dumping on the economy with its hawkish monetary policy are at last being felt.
“The (Federal Reserve’s) hikes in interest rates are beginning to bite into the economy and lower inflation as consumers become more frugal,” says Peter Cardillo, chief market economist at Spartan Capital Securities. “This is welcome news,” Cardillo added, suggesting that “there’s a possibility the Fed raises interest rates by 50 basis points in December and then takes a pause.” The Fed last week delivered its fourth consecutive 75 basis point rate hike.
Indeed, financial markets have now priced in a near 81% likelihood of a smaller, 50 basis point interest rate hike at the conclusion of next month’s FOMC policy meeting, and a 54% chance of a 25 basis point increase at the meeting to follow, according to CME’s Fedwatch tool.
The Dow Jones Industrial Average rose 780.67 points, or 2.4%, to 33,294.61, the S&P 500 gained 142.89 points, or 3.81%, to 3,891.46 and the Nasdaq Composite added 528.83 points, or 5.11%, to 10,882.01.
The CPI report prompted a swift turnaround in European shares, which jumped to near two-month highs.
The pan-European STOXX 600 index rose 2.59% and MSCI’s gauge of stocks across the globe gained 3.31%.
Emerging market stocks lost 0.59%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.05% lower, while Japan’s Nikkei lost 0.98%.
Signs that decades-high inflation growth is beginning to ebb sent U.S. Treasury yields lower, supporting expectations that the Fed could ease its foot from the rate-hike accelerator.
Benchmark 10-year notes last rose 75/32 in price to yield 3.8574%, from 4.142% late on Wednesday.
The 30-year bond last rose 90/32 in price to yield 4.1253%, from 4.319% late on Wednesday.
The dollar lost ground against a basket of world currencies as sunny economic data lured investors away from the safe-haven greenback.
The dollar index fell 1.96%, with the euro up 1.55% to $1.0166.
The dollar plummeted against the yen, setting a course for the biggest one-day drop since 2016.
The Japanese yen strengthened 3.21% versus the greenback at 141.92 per dollar, while sterling was last trading at $1.1671, up 2.77% on the day.
Risk-on sentiment helped cryptocurrencies stage a partial comeback, with bitcoin last up nearly 12%, reversing its freefall after the collapse of crypto exchange FTX.
Crude prices also staged a turnaround following the rosier than expected CPI report, on hopes that sturdy demand will help offset renewed COVID restrictions in China.
U.S. crude rose 0.35% to $86.13 per barrel and Brent was last at $93.39, up 0.8% on the day.
Gold prices jumped as the dollar dropped, reflecting hopes that the inflation data could rein in the Fed’s hawkish stance.
Spot gold added 2.6% to $1,751.14 an ounce.
(Reporting by Stephen Culp in New York, Stella Qiu in Sydney and Alun John in London ; Editing by Emelia Sithole-Matarise, Kirsten Donovan, Raissa Kasolowsky and Andrea Ricci)
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