The October CPI report showed inflation slowing, with headlines at 3.2% and cores at 4%, leading markets to believe the Fed is nearing the end of rate hikes. Energy prices fell over 4% with declining gas prices, while food rose 3.3% and shelter 6.7%. The Fed's own survey sees higher expected inflation than CPI, including 6% for college and 9% for healthcare and rent. With rates at 5.5%, the Fed is likely to pause hikes and could begin cutting rates in 2024, but this risks further inflating home prices that haven't crashed despite higher rates. The Fed faces a tricky balancing act between inflation and recession as economic and political pressures mount for an end to aggressive tightening.
Wall Street surged Tuesday as inflation reading buoyed tech stocks as the Fed is nearing the end of its rate hike cycle. The Nasdaq soared the most by 2.4%, with Treasury yields plunging on the data showing inflation slowed more than anticipated last month. Home Depot and chipmakers like Marvell Technology rallied on earnings beats and analyst upgrades, while expectations grew for a Fed rate cut in 2024 after futures priced in a 65% chance of easing starting next May.
Gold glimmered overnight as investors grabbed the safe-haven metal, anticipating the Federal Reserve would go slow on future rate hikes that had threatened the non-yielding asset. With price pressures showing signs of cooling, commodities rallied on hopes the central bank can relax its aggressive monetary tightening that had tarnished gold's shine this year, sending prices spiking nearly 1% and triggering projections that could soon challenge its all-time highs around $2,050 an ounce.
Crude prices retreated from an early rally after delayed US inventory data tempered gains seen on the IEA and OPEC's rosy demand forecasts, while expectations of further Fed rate cuts stemming from easing inflation sent the dollar tumbling, which could revive oil prices if the EIA confirms a stockpile build rather than an expected drawdown. The U.S. and China announced the revival of a bilateral working group on climate, mending the troubled climate relationship.
The dollar dipped as inflation slowed more than forecast, stoking bets that the Fed is done hiking rates. Major currencies rallied, with the euro nearing a 2-month high, as markets priced out a December Fed hike and upped the odds of a May cut. Though the yen eased off recent lows, relief may be temporary as the dollar/yen still hovers around 150 while reports show a spike in U.S. corporate bond selloffs by Japanese investors.