As of 3:30 p.m. on Thursday, The S&P and Nasdaq were both headed for their best one-day gain since 2020.
ASX futures rose 147 points or 2.11% to 7105 as of 7:00 am on Friday, indicating a positive start.
The Labor Department’s report on Thursday was a rare bright spot for investors. The so-called core consumer-price index which excludes volatile energy and food prices was up 6.3% in October from a year earlier, less than the 6.5% gain that economists surveyed by The Wall Street Journal had forecast, and down from 40-year highs seen in September. On the whole, inflation was 7.7%, lower than 8.2% in September.
Trading on Thursday, some investors were tempered in their optimism that the Fed, which is expected to proceed with a half-percentage-point interest-rate increase in a month, would tighten at a more gradual rhythm in 2023.
“We think the stock and bond markets have bottomed and we can rally off the lows,” Jay Hatfield, portfolio manager at Infrastructure Capital Advisors, wrote in emailed comments. Mr. Hatfield added that he also thinks inflation will moderate even more next year, particularly if energy prices fail to remain above the level at which they were trading in the first three months of 2022.
Commodities were higher, with Brent crude up 0.9% at $US 93.48 a barrel and gold up 2.76% at $US 1,753.83.
In fixed income, the Australian 2 Year government bond yield was at 3.15% and the 10 year yield 3.71%. Offshore, yield on 2 Year US Treasury notes is at 4.33% and the yield on 10 Year US Treasury notes is at 3.83%.
The Australian dollar dropped to 65.85 US cents, from 64.30. The Wall Street Journal Dollar Index, which measures the U.S. currency against 16 others, lost 0.1% to 100.66.
Asia
Stocks in mainland China slumped, with sentiment bruised by fears that Beijing could impose more restrictions to quell new outbreaks of the coronavirus. Stocks of chip makers dragged on the market, with small-caps among the biggest losers. Shares of electric-vehicle and battery makers dropped on data this week that helped show who’s doing a poor job selling cars in October, and coronavirus monkey-messing with the supply chain. BYD Co. dropped 3.5% and China’s Contemporary Amperex Technology Co., the world’s biggest electric-vehicle battery maker, slid 3.0%. Software and media companies were among the gainers. Focus Media Information Technology Co. gained 4.3% and Zhejiang Canaan Technology added 1.4%. The Shanghai Composite Index fell 0.4% to 3036.13, while the Shenzhen composite Index fell 1.0% and the ChiNext Index was down 1.8%.
In Hong Kong, stocks fell in afternoon trading, closing out a three-day losing streak as the market retreated from the soaring gains of the opening days of the month. The blue-chip Hang Seng Index fell 1.7% to close at 16081.04. Car manufacturers were a leading drag, still smarting from a selloff on Wednesday which followed downbeat sales numbers. Geely plunged 5.6% while BYD tumbled 4.8%. Chinese internet heavyweights also dragged on the market with Alibaba and NetEase down 4.5% and 4.4%, respectively.
Japan’s Nikkei Stock Average dropped 1.0% to end at 27446.10, reflecting Wall Street’s overnight losses that were to an extent aggravated by the rout in cryptocurrencies. Cross-asset correlations are converging, particularly between cryptocurrencies and tech stocks, said Stephen Innes, managing partner of SPI Asset Management, in an email. Among Nikkei's biggest losers, e-commerce and online retailer Rakuten Group shed 5.0% and IT service and consulting firm NTT Data fell 3.2%. The U.S. dollar was at 146.14, up from 145.78 yen in Tokyo late Wednesday. The 10-year JGB yield slipped a half basis point to 0.245%.
Europe
European stocks rebounded following a decisively positive start to the trading day on Wall Street as unexpected US inflation data came in lower than anticipated. The pan-European Stoxx Europe 600 rose by more than 2 percent; in London, the FTSE 100 climbed 1.1 percent, the French CAC 40 rose about 2 percent and the German DAX jumped by more than 3 percent.
“US inflation data has given markets a welcome shot in the arm,” IG analyst Joshua Mahony wrote. "Today's inflation data has been compounded by comments from Fed’s Harker and Logan like the pace of rate hikes slowing down in the upcoming meetings."
North America
U.S. stocks soared, posting their best rally of the year, after a softer-than-forecast reading on inflation revived bets that the Federal Reserve would slow the rate of its interest-rate increases. At 3:30 p.m. Eastern time on Thursday The S&P and Nasdaq were heading for their largest one-day jumps since 2020.
So far in 2022, number after number about increases in what consumers pay for goods and services has been to the markets’ way of thinking bad news. Inflation has been stickier than most economists predicted. That has required the Fed to push interest rates higher at a pace not seen in decades, driving bond yields to multiyear highs and sending the stock market plummeting.
But the report from the Labor Department on Thursday was a rare reprieve for investors. The broad consumer-price index which leaves out volatile energy and food costs increased 6.3% in October from a year earlier, less than the 6.5% that economists surveyed by The Wall Street Journal expected, and down from a 40-year high in September. Inflation over all was 7.7 percent, and was also lower than the 8.2 percent rate in September.
The data offered fresh hope to investors that the Fed, which is expected to raise interest rates by half a percentage point next month, will begin to slow its pace of interest-rate increases in 2023.
Fed Chairman Jerome Powell indicated during a news conference last week that he wouldn’t necessarily have to witness a streak of lower inflation readings as many traders had previously assumed in order to justify slowing the pace of rate increases. That gives Thursday’s report outsized importance for money managers who think markets will be best positioned for a comeback when inflation peaks and the Fed is able to at least call a hiatus on its rate hikes.
“We continue to believe that stocks and bonds have bottomed and can rally off the bottom,” Jay Hatfield, a portfolio manager at Infrastructure Capital Advisors, said in emailed comments. Mr. Hatfield said he is optimistic that inflation will moderate further next year, particularly if energy prices remain at or below where they started in the beginning of 2022.
Others are less sure. Inflation remains very high even with last month’s moderation. Investors have also watched a version of this rally unfold and then unravel. Stocks surged over the summer on hopes that the Fed would reverse course on tightening monetary policy and go from raising interest rates to cutting them as soon as next year. But the gains were fleeting. Markets tanked in both August and September, thanks to some tough talk from Fed officials about the need to continue raising rates, as well as hotter-than-expected inflation data.
“I can see a window where the market gets this kind of second false dawn, as we had in the summer where it gets excited about peak Fed and peak inflation narrative,” said Hani Redha, a portfolio manager at PineBridge Investments.
Thursday’s gains were broad, propelling stocks across all the industries. Cryptocurrencies also took a breather. The fall from grace of FTX, which had previously been among the largest cryptocurrency exchanges, reverberated across digital currency and token markets this week. The future of the crypto exchange company FTX was cast into doubt Wednesday after the crypto exchange Binance backed away from a rescue deal.
Still, despite those headwinds, bitcoin was up to $17,725 after having dropped Wednesday to below $16,000. Shares of the cryptocurrency exchange Coinbase rose by 12 percent.
