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A softer than expected United States CPI print caused a big reaction in financial markets earlier, with stocks posting bumper price gains and the US dollar crashing.
All three of the major indices posted price gains of over 1 percent intraday, with the Nasdaq leading the way and posting price gains of close 2.50 percent.
Major moves were also seen in the foreign exchange market as the EURUSD broke the 1.0600 handle, while sterling surged towards the 1.2400 level.
Analysts at JP Morgan have said that 6.9% or lower has the potential to lift the S&P 500 index between 8% and 10%. However, the trading desk at JP Morgan assigns a 5% probability to that playing out.
The consumer price inflation rate in the US eased for a fifth straight month to 7.1 percent in November 2022, the lowest since December 2021 and below market expectations of 7.3 percent.
Still, the latest reading remained well above the US Federal Reserve’s 2 percent target. On a monthly basis, the non-seasonally adjusted CPI edged down 0.1 percent to 297.711 points, while the seasonally adjusted index was up 0.1 percent, the least in three months and below consensus of 0.3 percent.
US core consumer prices, which exclude volatile items such as food and energy, went up by 0.2% from a month earlier in November of 2022, down slightly from a 0.3% rise in the prior month and below market estimates of a 0.3% increase.
It was the smallest increase in core consumer prices since August of 2021. This is of course one of the big reasons for today’s outsized reaction in financial markets.
The indexes for shelter, communication, recreation, motor vehicle insurance, education, and apparel were among those that increased over the month, while the indexes for used cars and trucks, medical care, and airline fares declined.
Year-on-year, core consumer prices advanced 6.0% in November of 2022, slowing from a 6.3% increase in October and below market estimates of a 6.1% rise.
