Signs that inflation in the world’s biggest economy may have reached a peak sent global share prices soaring this week as investors hoped the pace of interest rate rises could soon start to slow. The news on Thursday that annual growth in the US consumer price index (CPI) had dropped to 7.7% in October compared with 8.2% a month earlier was welcomed by investors. Markets were especially relieved that the Bureau of Labor Statistics’ core measure of inflation, which excludes energy and food costs, had also declined following unexpected increases in August and September. In particular, the technology and other high-growth stocks that had been hit hardest by 2022’s tightened monetary policy recorded strong gains. Bond markets now expect the Federal Reserve to raise interest rates in December by just 50 bps following a string of 75bps rises. As well as boosting stock markets, the news caused the dollar to fall sharply.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 4% up for the week so far, with the S&P 500 gaining 4.9%. The technology-heavy Nasdaq index, meanwhile, advanced by more than 7%. Stocks in the US enjoyed their best single day’s trading in more than two years when the inflation figures were announced.
Up until that point, the week had been mixed with a lack of clarity over the results of the US midterm elections which failed to provide direction. New data showed a sharp fall in confidence among America’s small businesses, highlighting the ongoing impact of this year’s rising prices and higher interest rates.
In the UK, the FTSE 100 closed on Thursday 0.6% up for the week. Shares in Britain’s biggest companies saw their gains limited by the rise in the pound against the dollar, which reduces the sterling value of their international revenues. Economic indicators in the UK remained weak, with latest figures showing home repossessions leapt in the third quarter of the year while house prices slowed considerably in October. At the same time, falling consumer spending has thrown the future of several major retailers into doubt.
In Frankfurt, the DAX index ended Thursday’s session up 5.1% for the week, while France’s CAC 40 gained 2.2%. Investors welcomed the news that German industrial production had increased in September, despite concerns about manufacturers’ energy costs, following a drop in August. The fall in the value of the dollar is likely to be a positive development for European markets as it should lead to lower import and fuel costs, potentially helping to ease inflationary pressures over the winter.
In Asia, major indices had closed by the time the US inflation data was published, although they were expected to see a bounce in Friday’s session. By Thursday’s close, the Hang Seng index in Hong Kong had dipped 0.5% following last week’s gains, with concerns growing that the local economy may not be able to reopen as quickly as investors had hoped. Official data showed that China’s international trade had declined in October while factory-gate prices were also down. Japan’s Nikkei 225 index of leading shares rose 0.9% with gains limited by the unclear political news from the US.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 10 November 2022.