Bond market under pressure: Inflation data gives Wall Street a jubilant mood

Bond market under pressure
Inflation data sets Wall Street in jubilant mood

What is lower-than-expected US consumer price inflation worth? In a first reaction, investors expect the Fed to take a smaller interest rate hike. That makes shares lucrative and puts government bonds on hold.

Wall Street rallied on hopes of a slower pace of interest rate hikes by the US Federal Reserve. The Dow Jones index posted its biggest one-day gain since 2020. The much-anticipated US inflation data for October had weakened more than forecast. Easing inflationary pressures should allow the US Federal Reserve to slow the pace of its rate hikes, market hopes say. However, Deutsche Bank reminded that consumer price data will be published again before the next interest rate decision.

S&P 500 3,961.88

Of the Dow Jones Index gained 3.7 percent to 33,715 points. The broader one S&P 500 increased by 5.5 percent, and the technology-heavy one, which is considered to be particularly interest-sensitive Nasdaq Composite climbed 7.4 percent. In addition, the initial jobless claims from the previous week and data on real incomes from October were published. The number of initial applications rose slightly more than expected, but remained at a low level. Real incomes fell by 0.1 percent compared to the previous month.

At the bond market yields collapsed on expectations of less tight monetary policy. The US 10-year yield fell 27.0 basis points to 3.83 percent, marking its biggest daily decline in 13 years. Inflation was weaker than expected, but that doesn’t mean the Fed’s fight against inflation is over, said Willem Sels, global chief investment officer at HSBC Private Banking. However, to be sure that inflation is easing, the market will have to wait for signs that US job market tensions are also easing, the analyst said. Bond trading in the US will be closed tomorrow, Friday, for the Veterans Day holiday.

Of the dollar also slumped after consumer price data. The dollar index was down 2.3 percent. The euro rose to $1.0196. But Rabobank believes it’s too early to expect a significant reversal in dollar strength as the Fed continues to hike interest rates, said FX strategist Jane Foley.

Bitcoin recovered from the sharp sell-off. The price slide was triggered by reports that one of the largest trading platforms had been plagued by liquidity concerns, as Ulrich Stephan from Deutsche Bank said. “Price movements of this kind illustrate the fragility of the crypto market,” says the investment strategist: “Investors should be aware of the risks of digital currencies.”

the oil prices attracted easily. Brent and WTI were up as much as 0.8 percent. The very weak dollar provided support here, making oil cheaper for buyers from non-dollar countries. But concerns about lower demand from China continued to weigh on prices, it said. Also the gold price benefited greatly from dollar weakness and falling bond yields. The latter make the precious metal, which is held interest-free, more attractive compared to bonds.

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