Global Markets Cheer on Better Than Expected Inflation Data

Good news for global markets

Yesterday’s impressive rally in U.S. stocks and bonds has gone worldwide this morning, as investors see central banks making gains in their fight against inflation. Adding to the good news was a breakthrough in the House last night that could avert a government shutdown.

S&P 500 futures signal further gains at the opening bell. The question now is whether this represents a false dawn on inflation, or the start of a durable decline in rising costs — and interest rates.

Here’s what’s exciting investors: Yesterday’s cooler-than-expected Consumer Price Index data has shifted discussion in the markets from potential interest rate hikes to cuts, and what that might mean for stocks. President Biden, whose poll ratings have been hurt by inflation, also cheered the numbers.

Other promising data points came out this morning. Inflation in Britain fell to its lowest level in two years. And consumer spending and industrial output in China rebounded last month, a hopeful sign for the world’s No. 2 economy.

Market optimists have moved up their bets on rate cuts. Futures markets this morning pointed to the Fed starting to lower borrowing costs by May, sooner than previous estimates of closer to the end of 2024.

Less aggressive is Mohit Kumar, the chief financial economist at Jefferies, who wrote today that big rate cuts would begin after the presidential election next year. Jefferies predicts the Fed’s prime lending rate going to 3 percent by the end of 2025 from its current level of 5.25 to 5.5 percent.