The numbers everyone has been waiting for are in: inflation in the US is lower than expected. Month-on-month core inflation rate came in at 0.2% as opposed to the expected 0.3%. The year-on-year inflation rate, which was previously at 3.7%, also beat expectations coming in at 3.2%, 0.1% lower than expected.
The results were predictable and immediate. News that inflation may finally be reigned in sent the DXY hurtling to the downside, closing the day 1.5% in the red. The Euro in particular gained 1.68% versus the Dollar and the Pound now trades at around 1.25 USD. The hope is that the Fed will see some of the signs it needs that monetary tightening is having the desired outcome and that a lowering of interest rates will finally become a possibility.
Buoyed by optimism of future monetary easing, the reaction in stock markets was unsurprising. The Nasdaq Composite closed above 14,000 for the first time since early September, after gaining 2.37% on the day. The S&P 500 finished 1.91% in the black after flirting with the 4,500 level and the Dow Jones Industrial managed an admirable 1.43%. Early morning trading in Asia suggests the good news has spread to the other side of the Pacific, the Nikkei 225 and Hang Seng amongst others opening high on Wednesday morning.
The news was even enough to nudge gold higher, pushing it to $1963 an ounce on Tuesday. Whether or not this is the start of a greater trend reversal remains to be seen. The inflation data we’ve seen is encouraging but remains only a small piece of a much bigger picture, one we hope the Federal Reserve can shine some light on.
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