Wall Street’s benchmark S&P 500 rose 4.1 percent in early New York trading, while the tech-heavy Nasdaq Composite jumped 5.7 percent. In government bond markets, the yield on the two-year note, which is highly sensitive to interest rate moves, fell 0.30 percentage points to 4.32%. The yield on the 10-year note fell 0.28 percentage points to 3.86%. Returns fall when prices rise. The rebound in markets came after the US consumer price index for October read 7.7%, marking the smallest 12-month increase since January and a sharp drop from September’s 8.2% annual inflation rate. Economists had forecast an 8 percent rise. The core CPI reading, which excludes food and energy prices, came in at 6.3 percent year-on-year, below expectations of 6.5 percent and September’s 6.6 percent. The dollar fell immediately after the CPI report, down 1.4% against a basket of six peers. The lower-than-expected readings ease pressure on the Fed to maintain its policy of aggressive rate hikes to fight inflation. The central bank has made four consecutive hikes of 0.75 percentage points this year to slow rising prices. Fed Chairman Jay Powell signaled earlier this month that the central bank would slow the pace of monetary tightening but reach a higher-than-expected terminal rate. Former US Treasury Secretary Lawrence Summers said earlier this week that the terminal rate could reach “6 [per cent] or more”. However, markets now expect the Fed’s benchmark interest rate to peak around 4.8% in May 2023, having previously forecast a peak of just over 5% in June. “[The CPI numbers] will be a catalyst, I think we’ll have a pretty good market rally through the end of the year,” said Jim Paulsen, chief investment strategist at The Leuthold Group. “The fact that the Fed can slow down from here means that what could break out is a conversation not just about recession and not inflation, but a conversation about maybe avoiding a recession altogether,” Paulsen said. “Maybe we have a soft landing.” Traders are also assessing the upcoming results of this week’s midterm elections. A day after the polls closed, elections had not yet been called in many states, leaving control of both the Senate and the House up in the air. But analysts said the GOP showing so far had already undermined pollsters’ predictions of a “red wave” in both legislatures. In Asia on Thursday, Japan’s Topix fell 0.7 percent, Hong Kong’s Hang Seng fell 1.7 percent and China’s CSI 300 index of Shanghai and Shenzhen shares fell 0.7 percent. Europe’s Stoxx 600 was up 2.7 percent in early afternoon trade and London’s FTSE was up 1.2 percent.
