Inflation fever breaks
By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank
The Federal Reserve (Fed) doves got a big energy boost yesterday by a slightly lower-than-expected inflation report. The headline inflation fell to 3.2% in October from 3.7% printed a month earlier, and core inflation eased to 4% from 4.1% printed a month earlier. Services excluding housing and energy costs – the so-called super core figure closely watched by the Fed - rose only 0.2% and shelter costs rose only 0.3%, down from a 0.6% advance printed a month earlier. The soft set of inflation print cemented the expectation that the Fed is done hiking the interest rates. The US 2-year yield – which best captures the rate bets – tanked 24bp to 4.81%. The 10-year slipped below 4.50% and activity on Fed funds futures gives around 95% chance for a no rate hike in December. That probability stood at around 85% before yesterday's US CPI data.
In equities, the S&P500 jumped past its 100-DMA, spiked above the 4500 mark, and closed the session a few points below this level. Nasdaq 100 extended its gain to 15850. In the FX, the US dollar took a severe hit. The index fell 1.50% on Tuesday, pulled out a major Fibonacci support and sank into the medium-term bearish consolidation zone. The EURUSD jumped to almost the 1.09 level. Yes, there is no mistake – to nearly 1.09 level, and Cable flirted with the 1.25 resistance. What a day!
A small parenthesis on UK inflation
Good news came from Britain this morning, as well. Inflation in the UK fell 6.7% to 4.6% in October, lower than the 4.7% penciled in by analysts. Core inflation also eased more than expected to 5.7%. There is growing evidence that the major central banks' efforts are bearing fruit. Cable is sold after the CPI data, but the pullback will likely remain short-lived if the USD appetite continues to wane globally.
