U.S. stocks soared higher Tuesday, while Treasury yields tumbled to multi-month lows and the dollar retreated against its global peers, following a better-than-expected reading of October inflation that lifted bets on a near-term rate cut from the Federal Reserve.
The Commerce Department said headline inflation slowed to 3.2%, inside the Street's 3.3% forecast, while core pressures eased to a fresh two year low of 4%.
At the same time, bets on a March Fed rate cut surged to around 25%, based on the CME Group's FedWatch, with the odds of a hike in either of the coming two meetings virtually erased by the slowing inflation backdrop.
“Today’s CPI report is more good news for the Fed, markets, and consumers. The trend lower is in place and this should increase Fed Chair Powell’s confidence that the Fed does not need to raise rates again," said Steve Wyett, Chief Investment Strategist at BOK Financial in Tulsa, Oklahoma. "When combined with the weaker-than-expected employment report, we can see the Fed’s actions are having an impact. The 'soft landing' scenario remains intact.”
We are not talking about the Fed lowering rates yet, but the path we are on is leading in that direction," he added.
Related: Jobs report shows marked slowdown; jobless rate highest since January
U.S. stocks powered higher following the data release with the S&P 500 extending in November rally by around 83 points, or 1.87% in early afternoon trading to peg its November advance at around 7.3%, while the Dow Jones Industrial Average gained 470 points. The tech-focused Nasdaq was up 315 points, or 2.129%.
Benchmark 10-year Treasury note yields were marked 17 basis points lower at 4.461% while 2-year notes were pegged at 4.836%, around 20 basis points lower from prior to the data release.
The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 1.39% lower at 104.2161.
The CME Group's FedWatch is now pricing in no chance that the Fed will lift the benchmark federal-funds rate by a quarter-point, to between 5.5% and 5.75%, when it meets next month in Washington. The odds of a hike in January were slashed to 6.2%.
Bets on a March rate cut, meanwhile, leaped to 31.4%, up from just 10.1% prior to the release, with the odds of a reduction in May pegged at 49.6%
Stocks ended mixed on Monday in a tepid session highlighted by a nine-day winning streak for Nvidia NVDA, the longest in seven years, and more gains for the chip sector, while the S&P 500 moved in and out of positive territory while closely tracking moves in the Treasury bond market.
Data from Bank of America notes that the S&P 500 has only fallen three times over the past twelve months in the wake of an inflation print, including a 0.6% decline following the September report last month.
The group's closely-tracked Fund Mangers' Survey, published Tuesday, also suggests that around 76% of those polled have called the end of the Fed's rate-hiking cycle, while nearly two-thirds see lower Treasury yields in the months ahead.
Stocks were moved higher in Europe following the inflation report, as well, with the region-wide Stoxx 600 rising 1.38% in Frankfurt trading, building gains that followed a second reading for third quarter GDP that should a 0.1% contraction for the world's biggest economic bloc.
Overnight in Asia, the region-wide MSCI ex-Japan benchmark was up 0.28%, with stocks in China getting another optimistic boost ahead of President Xi Jinping's meeting with President Joe Biden at the APEC summit in San Francisco.
Japan's Nikkei 225, meanwhile, edged 0.34% higher as the yen held near a fresh one-year low of 151.68 against the U.S. dollar despite hints of intervention from Finance Minister Shunichi Suzuki.
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