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Instant View: Comfortably cool U.S. CPI suggests aggressive Fed hikes taking hold

NEW YORK, Nov 10 (Reuters) – U.S. consumer prices increased less than expected in October and underlying inflation appeared to have peaked, which would allow the Federal Reserve to dial back its hefty interest rate hikes.

The consumer price index rose 0.4% last month after climbing by the same margin in September, the Labor Department said on Thursday. Economists polled by Reuters had forecast the CPI would advance 0.6%. In the 12 months through October, the CPI increased 7.7%, after rising 8.2% on the same basis in September, marking the first time since February that the annual increase in the CPI was below 8%. CPI peaked at a 40-year high 9.1% in June. Annual inflation is slowing as last year’s big increases drop out of the calculation. read more

MARKET REACTION:

STOCKS: S&P 500 futures turned sharply higher and were up 3.1%

BONDS: The yield on 10-year Treasury notes tumbled and was down 21.5 basis points at 3.927%; The two-year U.S. Treasury yield was down 26.6 basis points at 4.362%.

FOREX: The euro reversed a loss against a tumbling dollar and was up 1.05%. The dollar index was off 1.3%

COMMENTS:

BRIAN JACOBSEN, SENIOR INVESTMENT STRATEGIST, ALLSPRING GLOBAL INVESTMENTS, MENOMONEE FALLS, WISCONSIN“Well, that was a relief. We’re getting some inflation relief. The run-rate for inflation is 4.8% annualized and that’s a material improvement from where we’ve been. Shelter is the main contributor to inflation and everyone should know by now that it’s a garbage indicator of where inflation is headed. The Fed knows it and it can throttle back rate hikes. Maybe that peak rate for the federal funds rate doesn’t have to be so high after all.”

LEE HARDMAN, CURRENCY STRATEGIST, MUFG, LONDON

“The CPI report has reinforced the selloff momentum in the dollar.”

“It gives the market more confidence that there could be a turn in the inflation cycle and the Fed could slow the rate hike pace in December.”

PAUL NOLTE, PORTFOLIO MANAGER, KINGSVIEW INVESTMENT MANAGEMENT, CHICAGO

“The market thinks it’s wonderful. The focus here is really not so much on year over year. It’s the monthly stepdown. A lot of the areas that we’ve all looked at and said this is going to have an impact, are having an impact… a lot of those things are finally working their way into the numbers. And I think the expectation now is the Fed hikes rates 50 basis points in December. We were never in that camp, but expectations were for 75.”

ART HOGAN, CHIEF MARKET STRATEGIST, B. RILEY WEALTH, NEW YORK

“A softer than expected inflation report is acting as a tailwind for markets. Every line of the report shows sequential improvement.”“The good news is that we saw a significant sequential improvement, inflation is clearly moving in the right direction. And that keeps a more hawkish Fed at bay.”

“We came into this week nervous about the elections but we can check that box now, we know we’ll have at least some gridlock in Washington. Next, we immediately turned our attention to the CPI and that clearly came in better than expected. The only potential headwind here has been the significant selloff in cryptocurrencies and that seems to have stabilized a bit morning too.”

“Also important is the initial jobless claims came in higher than expected, so we’re finally starting to see some of those layoffs announcements by tech companies filter into the weekly data.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

“The key is the core rate. This numbers to peaking inflation and as you can see stock (futures) are responding in a big way.”

“This is good news and if it keeps up, we will be near a pause by the Fed. This is welcome news.”

“The hikes in interest rates are beginning to bite into the economy and lower inflation as consumers become more frugal.”

“There’s a possibility the Fed raises (interest rates) by 50 basis points in December and then takes a pause.”

RYAN DETRICK, CHIEF MARKET STRATEGIST, CARSON GROUP, OMAHA

“Today’s date is a big relief. We’ve seen signs that inflation was starting to roll over – used car prices, rents have been coming down. But it’s nice to see confirmation in the government data, which is what we’ve seen today.”

“This does open the door to a likely 50 basis point hike in December, calming some of the Feds extremely hawkish stance that it had on inflation so far this year.”

ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, FAIRFIELD, CONNECTICUT

“It’s a good sign for the Fed. The data is surprisingly better than expected. It rocketed the futures higher and then to top it off, weekly initial unemployment claims came in higher than expected. So it’s all moving in the direction that the Fed wants it to.”

“Given just this data, it would allow the Fed to raise by only 50 basis points rather than 75 at the next meeting.

I don’t think they would go any lower than that.”

Compiled by the Global Finance & Markets Breaking News team

Our Standards: The Thomson Reuters Trust Principles.

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