EURUSD: The US inflation report stirred optimism about balanced Tuesday's dovish US inflation report increased confidence that the Federal Reserve can effectively manage consumer prices without harming the economy. This so-called "Goldilocks" scenario is neither too hot nor too cold and is considered beneficial for both stocks and bonds.
The asset class posted strong gains in November after continued uncertainty, fueled by expectations that the Fed was unlikely to raise rates further, leading to market volatility. School from early 2022.
Inflation statistics released on Tuesday confirmed this view. For the first time in more than a year, consumer prices remained steady month-on-month in October, a softer result than analysts expected. At the same time, there is little evidence that tighter monetary policy is causing significant harm to the economy, supporting the view that prices can continue to cool without hindering growth.
Eric Kuby, Chief Investment Officer at North Star Investment Management Corp, commented on the market reaction to these developments. "The broader market has been challenged with this consensus negative view on both recession and inflation," Mr. Kuby said. "The reality is telling a different story. This is a Goldilocks moment for the entire market. ”
The data prompted strong gains in stocks and bonds. The S&P 500 rose 1.9% on the day, its biggest single-day gain since late April. The index is up 9% from its October low. The benchmark 10-year Treasury yield, which is inversely correlated with bond prices, fell to its lowest level since late September, more than 50 basis points below the 16-year high it hit last month.
In response to the inflation report, federal funds futures traders said Tuesday that the Fed would avoid further rate hikes and expect to cut rates by about 100 basis points in 2024, up from a 75 basis point cut expected before the report. I expected it.
