US Stock Market Surges After Inflation Data Matches Estimates

Jakarta, CNBC Indonesia – The United States (US) or Wall Street stock exchange opened with a jump in trading on Tuesday (14/11/2023) after the data that investors had been waiting for matched estimates.

The Dow Jones index opened up 0.95% at 34,662.83, the S&P 500 opened up 1.36% at 4,471.68, and the Nasdaq opened with an appreciation of 1.80% at 14,015.37.

Major US stock indexes cheered at the open of trading Tuesday after lower-than-expected inflation data raised expectations that the Federal Reserve had finished raising interest rates.

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Data showed that US consumer prices were unchanged in October amid low gasoline prices, and inflation showed signs of slowing.

In the 12 months to October, the CPI rose 3.2% after rising 3.7% in September, while economists polled by Reuters had expected a 3.3% rise on a year-on-year basis.

Excluding fluctuating food and energy prices, core CPI increased 0.2% and 4%, versus estimates of 0.3% and 4.1%. The annual rate is the lowest in two years, although still well above the Federal Reserve’s target of 2%.

The flat headline CPI data came as energy prices fell 2.5% on the month, offsetting a 0.3% rise in the food index.

Housing costs, a key component in the index, rose 0.3% in October, half the increase in September as the year-over-year increase eased to 6.7%. In that category, owner-equivalent rental prices, which measure the amount of rental a property owner can book, increased 0.4%.

Vehicle costs, a major component of inflation during the surge in 2021-22, fell in the month. New vehicle prices fell 0.1%, while used vehicle prices fell 0.8% and were down 7.1% from last year.

Airfares, another closely watched component, fell 0.9% and were down 13.2% annually. However, motor vehicle insurance increased by 1.9% and rose 19.2% from last year.

“We’re happy to see the headline and core CPI lower than expected. This tells us the Fed is done, there’s nothing more that can be done here,” said Thomas Hayes, chairman of hedge fund Great Hill Capital in New York.

“You have to be wary of the potential for deflation, but right now it’s Goldilocks. This is what the Fed is looking for, slowing inflation, slowing the labor market and the economy surviving at the same time.”

Following the data, traders removed speculation that the Fed would raise borrowing costs further and move towards lowering interest rates.

U.S. Treasury yields fell after the data was released, with the two-year yield US2YT=RR, which best reflects short-term interest rate expectations, sliding to a two-week low of 4.872%.

Additionally, nonfarm payrolls in October only increased by 150,000, indicating that the labor market is finally showing signs that it is reacting to the Fed’s efforts to correct the supply-demand imbalance that has been a contributing factor to inflation.

Labor costs increased at a much slower pace over the past year and a half as productivity increased this year.

More broadly, gross domestic product (GDP) surged in the third quarter, with an annual growth rate of 4.9%, although most economists expect the growth rate to slow significantly.

However, other indicators show that consumer inflation expectations are still rising, possibly due to surging gasoline prices and uncertainty caused by the wars in Ukraine and Gaza.

Fed Chair Jerome Powell last week added to market anxiety when he said that he and his fellow policymakers were still not convinced they had done enough to bring inflation down to a 2% annual rate and would not hesitate to raise interest rates if there was no progress. .

Despite the slowdown, the Fed will likely continue to be hawkish and will continue to warn investors not to be complacent with the Fed’s determination to reduce inflation to its long-term target of 2%.

Even if the Fed does raise interest rates, there is still uncertainty about how long the central bank will keep its benchmark interest rate at its highest level in 22 years.

Disclaimer: This article is a journalistic product in the form of CNBC Indonesia Research’s views. This analysis does not aim to encourage readers to buy, hold, or sell related investment products or sectors. The decision is entirely up to the reader, so we are not responsible for any losses or profits arising from this decision.

[Gambas:Video CNBC]

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