NEW YORK/LONDON, Nov 14 (Reuters) – World stocks soared on Tuesday after U.S. inflation data came in cooler than forecast in October, fuelling investor bets that an era of interest rate rises is over and borrowing costs may even soon start to fall.
Data showed U.S. consumer prices were unchanged in October amid lower gasoline prices, while underlying inflation showed signs of slowing. Excluding volatile food and energy components, the CPI increased 0.2% amid higher costs for rental housing. Analysts polled by Reuters had expected a 0.3% gain.
By 12:02 p.m. ET (1702 GMT), the MSCI World Equity index (.MIWD00000PUS) surged 2%, its best day in about a year.
Stocks also rallied across the board on Wall Street. The S&P 500 index (.SPX) leapt 1.9%, the Dow Jones Industrial Average (.DJI) jumped 1.5%, and the Nasdaq Composite Index (.IXIC) bounded 2.2%, on track for its best day in about six months.
“You can say goodbye to the rate hiking era,” said Brian Jacobsen, chief economist at Annex Wealth Management in Wisconsin, adding that investors will now turn to bets on when U.S. Federal Reserve policymakers led by Chair Jerome Powell might start to cut rates.
“If the Powell Pause began in July, we’ll have to see how long he can hold rates here. In the soft landing of 1994-1995, the pause only last five months.”
Powell and other policymakers have said before the latest U.S. inflation data that they are still not sure that interest rates are high enough to tame inflation.
The pan-European STOXX 600 also jumped after the benign U.S. inflation report, and was last up 1.3%.
In line with expectations that U.S. rates might have peaked, Treasury yields dropped on Tuesday.
U.S. two-year yields , which reflect interest rate expectations, slid to two-week lows of 4.8423%, and the benchmark 10-year yield fell to a low of 4.4320%, a low not seen in nearly eight weeks.
Lower yields dragged the U.S. dollar index down 1.3%. A softer dollar boosted the euro up 1.5% to $1.08560 .
Dollar weakness gave the yen, which has been stuck near its lowest level in three decades against the dollar, a little reprieve.
The pair hovered around 150.73 , with the yen recovering slightly from Monday’s 151.92.
“We expect the Bank of Japan to move very, very gradually out of yield curve control and eventually out of negative rate policy, but this is unlikely to happen anytime soon,” Pictet Wealth Management’s macroeconomics chief Frederik Ducrozet said.
In the meantime, the pair is more likely to be driven by anything that moves the dollar, Ducrozet added.
Euro zone government bond yields were also down. The benchmark 10-year German yield was at 2.604% .
The Israel-Hamas war turned traders risk-averse in October, but world stocks have recovered almost 5% so far this month as investors bet major central banks have ended a lengthy run of rate hikes.
Asked how long rates would have to stay high to beat inflation, European Central Bank President Christine Lagarde said in an interview over the weekend that no change should be expected in the “next couple of quarters”.
Wages in Britain grew slightly less quickly in the three months to September, official data on Tuesday showed. Wages previously rose at a record pace, leaving the Bank of England on alert for inflation.
The euro zone economy contracted marginally quarter-on-quarter in the third quarter, a new estimate confirmed, underlining expectations of a technical recession if the fourth quarter turns out equally weak, but employment still rose.
Oil prices rose about 70 cents after the International Energy Agency (IEA) raised its demand growth forecasts, adding to bullish sentiment from the previous day’s OPEC guidance, with Brent crude futures at $83.21 a barrel, and WTI crude futures at $78.91 .
Reporting by Elizabeth Howcroft; Editing by Alexander Smith, Mark Potter, Nick Zieminski and Jonathan Oatis
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