Global equities surged on Thursday with bond yields slumping after U.S. inflation rose less than forecast in October.
United States
Over the 12 months to October, core inflation rose 6.3% easing from 6.6% previously and below estimates of 6.5%. Headline prices were also lower than forecast rising 7.7% against expectations of a 7.9% with both figures also lower than expected on a month-on-month basis at 0.3% and 0.4% respectively. In reaction, money markets pared back expectations of a 0.75% increase at the December Federal Reserve meeting, now expecting a softer 0.5% increase. Dallas Fed President Lorie Logan said it may soon be appropriated to slow the pace to better assess economic conditions while San Francisco’s Mary Daly said the moderation was “good news,” but “one month of data does not a victory make” also noting the discuss remains around stepping down the pace of increases rather than a pause in hiking. After several months of higher-than-expected readings, the inflation print is undoubtedly a relief for markets, although it remains to be seen whether this is a trend that will continue and inflation still remains uncomfortably above target. Should we see inflation begin to decline substantially while economic data continues to deteriorate, then investors should remain mindful of risks beginning to shift to whether the Fed will have already driven the economy into a recession and make a policy mistake of easing too slowly.
As of 3:30pm in New York, equities were on track for their best post-inflation day rally in more than a decade. The S&P500 climbed 5.10% with 96% of stocks higher, lifted by technology 7.59% and consumer discretionary 7.2% with all sectors positive. The Dow Jones also gained 3.47%, as did the Nasdaq Composite 6.83% and Russell 2000 5.78% with the VIX slumping -10.46% to 23.36. Treasury yields slumped with the 2-year down -25.4 basis points to 4.326%, and the 10 and 30-year rates down -24.8 and -18.1 basis points respectively, weighing on the U.S. dollar index which feel -2.05%. In focus tonight is the release of the University of Michigan consumer sentiment survey for November, expected to show a modest decline to 59.5 from 59.9 in October.
Europe
European equities also climbed, lifted by softening U.S. inflation and risk-on sentiment. The Euro Stoxx 600 climbed 2.75% along with the DAX 3.51%, CAC 1.96% and FTSE100 1.08% with major benchmarks across the region all higher. Seema Shah Chief Global Strategist at Principal Asset Management noted ““The first downside surprise in inflation in several months will inevitably be received by an equity market ovation…the best we can expect from the Fed is a downshift in the pace of tightening” and “until we have had a run of these types of CPI reports, a pause is still some way out”. The Euro climbed 1.69% against the USD to 1.0180 with the Pound rising 2.96% to 1.1694 with 10-year government bond yields across the region falling between -10.9 and -27.9 basis points.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX looks set to surge 2.03% at the open this morning with ASX200 futures up 142 points to 7,100. The index declined -0.5% on Thursday weighed by a decline in materials and financials of -1.19% and -0.93% respectively while utilities was a stand out rising 13.15% after Origin energy surged 34.77% following a takeover offer a $9 per share from Canadian Giant Brookfield Asset Management and US based EIG. The partners intend to divide Origin’s assets between them having offered a 55% premium to the shares closing price on Wednesday, with Origin’s board intending to unanimously recommend the offer. Shares in Perpetual were also a notable performer, rising 14.8% after rejecting a revised $33 per share bid from Regal and BPEA. Elsewhere, Computershare rose 4.1% after upgrading its EPS guidance for the 2023 financial year to around $0.90 supported by rising interest rates expected to boost income to US$800m.
Commodities
Oil prices rose modestly overnight with both WTI and Brent crude up 0.61% and 0.89% following sharp falls on Wednesday as U.S. crude stockpiles rose more than forecast. Iron ore futures in Singapore weakened -2.19% on Thursday although have recovered those losses in early trade this morning, up 2.07% to US$88.30. Gold surged 2.78% to US$1,754.26 supporting by a weaker USD and lower real yields, with silver also rising 3.0% to US$21.68. Elsewhere, Bitcoin recovered 10.48% to US$17,380 having fallen as much as -26% over the prior four sessions.
Economic data:
- German Inflation Final (YoY Oct) 18:00
- UK GDP (3 months Sep) 18:00
- ECB Guindos Speech 23:00
- US Consumer Sentiment (MoM Nov) 02:00
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
