Global stock markets up, dollar declines as US inflation shrinks

Stocks surged while the dollar dropped on Tuesday as US inflation slowed more than expected, opening the way for the Federal Reserve to reduce the tempo of interest rate hikes.

US consumer prices rose at an annual pace of 7.1 percent in November, down from 7.7 percent in October, according to Labour Department data.

The consumer price index (CPI) is a closely-watched measure of inflation and was forecast by analysts to come in at 7.3 per cent. The bigger-than-expected drop should come as a relief to monetary policymakers after wholesale inflation came in hotter than expected last week.

“The key takeaway from the report at first blush is that overall inflation is cooling and that the Fed should be convinced to temper the pace of its rate hikes and perhaps place a lower ceiling on its terminal rate,” said market analyst Patrick O’Hare at Briefing.com.

The central bank is widely expected to lift interest rates 50 basis points Wednesday -- a slowdown from the previous four 75-point hikes.

Lower inflation and interest rates are positive for businesses, and stock prices in Europe surged after the US inflation data was released, with London up 1.0 percent, Paris 2.1 percent, and Frankfurt 2.2 percent in afternoon trade.

Wall Street’s main indices jumped at the opening bell, with the Dow climbing 2.1 per cent. The S&P 500 rose 2.6 percent and the tech-heavy Nasdaq 3.6 percent.

“In summary, Santa has delivered a nice enough package to the Fed, who can now celebrate the Christmas with more peace knowing that inflation is moving in the direction that they want with plenty of tail wind behind,” said Naeem Aslam, chief market analyst at Avatrade.

The prospect of the Fed slowing interest rate hikes was not positive for the US dollar, however, which lost more than one percent against its main rival currencies.

Elsewhere, China’s shift away from its economically damaging zero-Covid policy continued to support sentiment as the world’s number two economy opens up.

Top Chinese officials are meeting this week to draw up their economic blueprint for re-emerging from Covid, with observers predicting more stimulus measures and pledges of support for the troubled property sector.

But there is also a worry among investors that the quick relaxation of containment measures such as mass testing and lockdowns might lead to a massive surge in infections that could overwhelm the healthcare system and weigh on the economy.

Still, the expected pick-up in demand in China boosted oil prices further, with both main contracts extending Monday’s strong gains.

“China’s reopening is coming, it won’t happen overnight, but it will provide a major boost to demand in the outlook next quarter,” said OANDA’s Edward Moya.

Ahead of the Wall Street open, United Airlines unveiled an order of 100 new Boeing 787 Dreamliners with options for an additional 100 jets.

Shares in Boeing climbed 1.4 percent and United Airways 1.2 percent as trading got underway.

And the US Securities and Exchange Commission charged disgraced cryptocurrency tycoon Sam Bankman-Fried with defrauding customers of billions of dollars.

Oil extended gains on Tuesday on supply disruptions and as COVID restrictions eased in China, the world’s largest crude importer.

Brent crude futures were up 64 cents, or 0.82%, to $78.63 per barrel by 1159 GMT, while U.S. West Texas Intermediate (WTI) crude futures gained 39 cents, or 0.53%, to $73.56.

WTI hit a low of $70.25 on Monday, close to the $70 theoretical buyback price at which U.S. President Joe Biden aimed to replenish U.S. crude stocks. This offered support on Tuesday.

Further support followed “relaxations of COVID curbs in China, the threat of lower Russian output in response to the G7 price cap, an outage on the keystone pipeline in the U.S.,” said Craig Erlam, senior market analyst at OANDA.

A timetable to restart TC Energy Corp’s Keystone Pipeline, which ships 620,000 barrels per day (bpd) of Canadian crude to the United States, remains unclear after a rupture last week.

The closure has raised expectations that U.S. crude inventories will decline by 3.9 million barrels in the week to Dec. 9, according to a preliminary Reuters poll.

Reports from the American Petroleum Institute are due at 4.30 pm ET (2130 GMT) on Tuesday.

The disruption comes as export volumes from Russia’s Baltic and Black Sea ports are set to decline this month.

Investment banks Bank of America and Goldman Sachs said on Monday a successful economic reopening in China could further boost oil prices above $90 per barrel.

China has scrapped some of its strict COVID curbs over the past week but surging infection rates continue to feed uncertainty.

“Inflation is high, economic growth is stuttering, global recession is looming, oil consumption is under pressure and supply is unpredictable at best,” Tamas Varga, analyst at PVM Oil Associates, said.

The market will continue to look for signals from the OPEC monthly report and the U.S. Consumer Price Index due on Tuesday. Central bank decisions on interest rates are due from the Federal Reserve on Wednesday, and the Bank of England and European Central Bank on Thursday.

Agencies