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US Stock Market Recovers as CPI Figures Fell Short of Expectations

US Stock Market Recovers as CPI Figures Fell Short of Expectations

The CPI YoY fell to 7.7% from 8.2% the previous month, while the core CPI fell to 6.3% from 6.6% in September.

Market movement was impressive following the release of the inflation figure on Thursday.

Although a slight drop in the CPI and core CPI data was expected, the figure came in significantly lower than expected. The CPI YoY fell to 7.7% from 8.2% the previous month, while the core CPI fell to 6.3% from 6.6% in September.

The comments of Fed officials made after the figure was published, such as those of Logan and Harker, confirmed a shift in the Federal Reserve's trend. Both agreed that it was time to scale back the rate hikes; in fact, the market is now pricing in a final interest rate of 4.85%, down from 5.15% previously, and Harker was willing to pause the hikes at 4.5%, well below what the market is expecting.

This is a marked departure from Jerome Powell's troubling remarks at the last Federal Reserve meeting's press conference, in which he was excessively harsh, going so far as to ensure that final interest rate expectations should be revised higher than the 4.65% established at the September meeting.

US Treasury bond yields have fallen, with the 10-year bond down 4% and the 2-year bond down around 30 basis points. The US dollar fell with the news, pushed down by the extraordinary drop-in market interest rates, most notably in the USD/JPY price, which fell more than four figures during the session, losing nearly 3%.

These unusual market movements were mirrored in the stock indices, particularly the Nasdaq technology index.

Since technology companies are the most sensitive to tightening monetary conditions, the market reacted positively to news that the Fed may slow rate hikes. In fact, the Nasdaq index rose the most in a single day since the pandemic began.

The Nasdaq rose more than 5% and is approaching the 11,690 area, which acts as the trigger point for a double bottom that originated from the 10,640 levels and would pave the way towards the theoretical target of 12,800.

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Sources: Bloomberg, Reuters

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