US CPI inflation
Fundamental Analysis

Equities Rally on the Back of Lower-than-Expected US Inflation

  • Data revealed that US consumer prices hardly increased in November. 
  • Markets are also keeping a close eye on the global economy.
  • Investors will focus on Jerome Powell’s press conference after the FOMC meeting.

Equities rallied on Wednesday, bonds were strong, and the US dollar was nursing losses. The enthusiasm that inflation has peaked and interest rate hikes will slow and eventually stop in 2023 was stoked after data revealed that US consumer prices hardly increased in November. 

However, uncertainty about the future steps of policymakers kept things from getting out of hand. The Federal Reserve meets later in the day, and central banks in Britain and Europe meet on Thursday. 

Investors are also paying close attention to the global economy, despite China’s reopening from rigorous COVID controls,

The headline US CPI rose 7.1% over the course of the last year through November, which was the slowest rate in over a year. Last month, the CPI jumped by 0.1%, 0.2 percentage points less than economists had predicted.

Overnight, Wall Street rose before easing up to end the day’s trading session, with the S&P 500 up 0.7%. The Nasdaq soared as much as 3.8% before closing 1% higher.

As US interest rate forecasts decline, the dollar is dropping from 20-year highs and falling quickly, while bonds are rising.

Markets anticipate the Fed will slow the pace of hikes but still lift its Funds rate goal range by 50 basis points to between 4.25% and 4.5% later on Wednesday. 

The “dot plot” chart depicting committee members’ predictions of future rate moves and the tone chairman Jerome Powell sets in his press conference will come under much scrutiny.

Inflation is showing evident indications of easing, but it is still high, according to Tareck Horchani, head of dealing for prime brokerage at Maybank Securities in Singapore.

The median forecast in September called for a peak in the Fed funds rate of roughly 4.6% next year. Tareck claims that the market wants to know whether the Fed will alter its position on the dot plot.

According to a note from Morgan Stanley strategists on Tuesday morning, this month’s report confirms October’s reduction in inflation pressures and is excellent news for the Fed.”

“The slowdown in tightening to 50 (basis points) was previously anticipated, and with the downturn in inflation well established, the FOMC can focus on the labor market.”