Wall Street surges Thursday after October CPI release

Wall Street showed a significant surge on Thursday following lower-than-expectation inflation for October, which signaled that the monetary tightening by the Federal Reserve had taken effect in the economy.

The Dow Jones closed at 33,548.59, rising by 1,034.65 points or 3.18 percent. The S&P 500 closed at 3,924.8, gaining 176.23 points or 4.70 percent. The tech-leaning Nasdaq Composite concluded the day at 11,000.49, growing 647.31 points or 6.25 percent. For S&P 500, the day’s gain was its largest one-day gain since April 2020.

Stocks in Europe also saw a surge, with the STOXX 600 rising by 2.75 percent. MSCI’s global stocks also displayed a 3.84 gain.

On the other hand, the U.S. dollar index dropped by 1.9 percent on Thursday against other currencies. The euro went up 1.48 percent to $1.0159. The sterling also grew 2.67 percent to $1.1659. The Japanese yen, which struggled in the past weeks, also gained 3.15 percent and reached 142.00 per dollar.

Analysts explained that investors had started to abandon the greenback at the prospect of inflation peaking.

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Data also showed that U.S. Treasury yields plunged to their five-week lows following the publication of the October consumer price index (CPI). The 10-year notes were down to 3.8461 percent from 4.142 percent on Wednesday. Meanwhile, the 30-year bond yielded 4.0989 percent after reaching 4.319 percent the previous day.

The October CPI revealed that the monthly rise was 0.4 percent, while the year-to-year increase was 7.7 percent. The core CPI, which does not count food and energy costs, rose by 0.3 percent monthly and 6.3 percent yearly. Significant declines occurred in the market of used vehicles (2.4 percent), medical services (0.6 percent) and apparel prices (0.7 percent).

Baker Avenue Asset Management chief strategist King Lip explained that the new data showed “constructive developments on inflation."

“We have been calling the peak of inflation for the last couple of months and just have been incredibly frustrated that it hasn’t shown up in the data,” Lip said. “For the first time, it has actually shown up in the data.”

According to the CME FedWatch Tool, 85 percent of stakeholders in the financial markets expected that the Fed would increase its benchmark rate by 50 basis points in December. About 55 percent of stakeholders also predicted that in the first FOMC rate-setting meeting in 2023, the central bank would do a 25 basis points hike.

Effects on cryptocurrency

Following the release of the CPI, the crypto market regained some of its losses. Bitcoin, the largest market shareholder in crypto, saw a nine percent gain on Thursday amid the market instability amid the possible insolvency of FTX.

Analysts argued that Bitcoin needed to rally its price above $19,000 per unit on Friday to prevent a $140 million loss in market value. However, data revealed that the liquidation of Bitcoin’s leverage long positions was at $352 million, indicating that the token had a smaller margin to support its current price.

A number of crypto analysts said it was difficult to predict the contagion effect that would arise from FTX’s insolvency until after it happened. Earlier in the week, Binance boss Changpeng Zhao warned that FTX’s downfall would be bad news for the entire crypto market.