Stocks and pound are bouncing back as US inflation cools

Global stock markets rose and the dollar tumbled after a fall in US inflation fueled hopes of less aggressive rate hikes from the Federal Reserve.

Official figures showed that inflation in the world’s largest economy fell to 7.7 percent last month, the FTSE 100 index rose 1.1 percent and the FTSE 250 rose 3.9 percent.

The rally resonated in the US, where the technology-intensive Nasdaq gained 2.7 percent and the S&P 500 gained 4.7 percent on Wall Street.

The dollar also plunged, with the pound rising more than 2 percent to $1.17 in its biggest one-day gain since 2017.

Japan’s troubled yen had its best session since 2016 after being battered by the rampant greenback for much of the year.

The fall in inflation, from 8.2 percent in September to 7.7 percent last month, the lowest level since January and well below the peak of 9.1 percent in June, fueled hopes that the Fed will slow the pace of inflation. interest rate hikes in the US will slow down.

“Inflation is still too high, but there are indications that the Fed has turned the corner in its battle and that the pace of future rate hikes will slow,” said Chris Rupkey, chief economist at FWD Bonds in New York.

“The market is on fire and the long-awaited moderation of inflation is finally starting to show.”

The Fed has raised interest rates more this year than at any time since the 1980s, bringing it to between 3.75 and 4 percent.

That’s the highest level since 2008. The gains have sent the dollar skyrocketing and stock markets plummeting as investors around the world adjust to higher borrowing costs after years of cheap money.

But the dollar has been easing in recent weeks as investors bet the Fed will slow down soon.

Lee Hardman, a currency strategist at MUFG in London, said the inflation numbers “reinforced the sell-off in the dollar.”

US technology stocks have been particularly hard hit this year. But they rebounded yesterday with Amazon up 11.3 percent, Microsoft up 6.4 percent, Apple up 7 percent, Facebook owner Meta up 10.2 percent, and Google parent Alphabet up 10.1 percent. 7.3 percent.

In a boost for Prime Minister Rishi Sunak and his chancellor Jeremy Hunt ahead of next week’s fall statement, government borrowing costs around the world also fell.

Ten-year government bond yields – a key measure of how much the government pays to borrow – fell below 3.3 percent after rising above 4.5 percent in September in the wake of Kwasi Kwarteng’s mini-budget.

The Fed is expected to raise interest rates by 0.5 percentage points next month and then by 0.25 percentage points after that to a peak of 4.75 percent to 5 percent — lower than the 5 percent plus recorded before the inflation data came out. published.

But experts warned investors not to get ahead of themselves.

Danni Hewson of broker AJ Bell said: ‘Increased prices for things like food and shelter hang stubbornly, and another hike in the price to pay for fuel at the pumps will be a real thrill for American motorists, as well as a visible daily reminder . of what’s going on with the economy.’

All of these factors could mean the Fed won’t step off the rate hike for a while, she added.