🔒 Stocks roar after latest inflation data

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By Isabelle Lee and Sujata Rao

(Bloomberg) — US stocks climbed after producer prices confirmed a slowdown in inflation, strengthening the case for the Federal Reserve to moderate its pace of interest-rate hikes. 

The S&P 500 rose as much as 1.8% while the tech-heavy Nasdaq 100 soared as much as 2.8%. Both indexes were buoyed by gains in Apple Inc., Microsoft Corp. and Amazon.com Inc.. Walmart Inc.’s earnings, which topped estimates, also boosted sentiment and lifted stocks. 

Treasuries rallied, with the 10-year yield declining to around 3.80%. The dollar fell and the pound rallied.

Markets have turned risk-on in recent days, trading off a softer-than-expected US consumer price index reading that many reckon will allow the Fed to raise rates in half-point increments. That view was encouraged by Federal Reserve Bank of Philadelphia President Patrick Harker on Tuesday, who said he expects officials to slow their tempo. 

Vice Chair Lael Brainard made similar remarks at a Bloomberg event on Monday, even though she emphasized the central bank has “additional work” to do to tame inflation. Federal Reserve Bank of Atlanta President Raphael Bostic also reiterated the central bank’s resolve to be persistent until inflation is under control.

On Tuesday, the producer price index for October came in at 8% year-on-year, undershooting the 8.3% estimate and further easing inflation concerns. 

“Taken alone, the data today supports the Goldilocks scenario, where growth is holding up very well — per the solid Empire Manufacturing report — but inflation pressures are rapidly easing — per the PPI print,” said Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors LLC. “I think that supports the ongoing rally that you’ve seen over the past month, but I question where this narrative will hold up in the coming months.”

Still, some investors are not convinced the recent data will do much to move the Fed.

“The markets are looking for good news — investors seems like they want to find reasons to take more risk,” said Brian Nick, chief investment strategist at Nuveen. “But I wouldn’t be jumping on this equity rally at the moment.”

Key events this week:

• Former US President Donald Trump plans to make an announcement, Tuesday
• US business inventories, cross-border investment, retail sales, industrial production, Wednesday
• Fed’s John Williams, Lael Brainard and SEC Chair Gary Gensler speak, Wednesday
• ECB President Christine Lagarde speaks, Wednesday
• Eurozone CPI, Thursday
• US housing starts, initial jobless claims, Thursday
• Fed’s Neel Kashkari, Loretta Mester speak, Thursday
• US Conference Board leading index, existing home sales, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.3% as of 11:27 a.m. New York time
• The Nasdaq 100 rose 2.1%
• The Dow Jones Industrial Average rose 0.7%
• The Stoxx Europe 600 rose 0.2%
• The MSCI World index fell 0.6%

Currencies

• The Bloomberg Dollar Spot Index fell 0.4%
• The euro rose 0.5% to $1.0381
• The British pound rose 1.1% to $1.1889
• The Japanese yen rose 0.5% to 139.21 per dollar

Cryptocurrencies

• Bitcoin rose 3.8% to $17,000.71
• Ether rose 3.2% to $1,265.52

Bonds

• The yield on 10-year Treasuries declined six basis points to 3.80%
• Germany’s 10-year yield declined five basis points to 2.10%
• Britain’s 10-year yield declined seven basis points to 3.29%

Commodities

• West Texas Intermediate crude fell 0.5% to $85.41 a barrel
• Gold futures were little changed

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Sujata Rao and Natalia Kniazhevich.

Read also:

• Goldman Sachs sees significant decline in US inflation next year
• Inflation, fear not. Central bankers may be slow, but the job may get done on time.
• Fed and BOE prepare 75 basis-point salvos on inflation