Despite a hiccup after a disappointing 10-year note auction, US markets pushed higher on Wednesday as traders prepare for the release of the October CPI data. The data is expected to show a slight improvement in inflation over the previous month. This could offer clues to the severity of future interest rate hikes by the Federal Reserve.
The Dow Jones Industrial Average jumped 3%, while the Nasdaq 100 jumped 7.4%. These gains were partially offset by weakness in the energy, telecom and utility sectors. These sectors were the first to sell off after the September CPI report came out. Some analysts have been speculating that the CPI was overstated.
A report on the Core Inflation Rate, which measures inflation using a broader basket of goods, is expected to show an improvement of about 1% from last month. This would be a huge positive for the US dollar. The FTSE 100 rose 1%. This was largely due to strong quarterly earnings from Apple Inc and Texas Instruments Inc.
A slew of economic reports also provided some clues. The unemployment rate dropped as job growth stayed steady. The Unemployment Rate fell to 6.7 percent from 6.8 percent in September. This is also a sign that the economy is growing steadily.
The Core Inflation Rate is expected to stay flat at 1.7 percent for the month of September. However, the headline CPI was reported to have increased 0.4%. This is the highest inflation reading in 40 years.
The US dollar dragged back from recent highs, and the Fed has reaffirmed its commitment to hiking rates, despite concerns about the effects of higher inflation. This week’s CPI report will be a big factor in determining whether the Fed will continue to raise rates. If the report is overly positive, the dollar could surge higher, while lower rates would send stock prices lower. However, if the report is too weak, the Fed could ease rates.
There are also signs that the US economy is slowing. Some analysts have been speculating the Fed will take a wait-and-see approach to interest rate hikes. This would be the first time in a while that the Fed has paused its rate hikes. Traders have also been re-pricing the Fed’s forecast. The Fed funds futures contract is now pricing in a 75-basis-point increase in December. This would set the stage for a wild end to 2022.
The S&P 500 was the best performer on the day, posting its biggest daily percentage gain since October 2013. This is the first day that the index has posted more than ninety percent of its stocks in green. The Dow Jones Industrial Average jumped ahead of the Fed’s Fed Pivot. This event drew traders’ attention away from the inflation report.
Other factors in the US stock market’s rally include the fall of the dollar and the ongoing US midterm elections. The election results are still uncertain, but Republicans still favored gaining control of the House of Representatives.