Fed Efforts Succeed? Investors Start Optimistic Before FOMC


 The latest reading of the United States (US) inflation rate yesterday reinforced the expectation that the Federal Reserve (Fed) will slow rate hikes at the FOMC meeting on Thursday morning.

The US Labor Department reported that consumer price index (CPI) data, which also measures the rate of inflation, fell 0.1% in November compared to the previous month at 0.4%, well behind market expectations of 0.3%.

This indirectly restored market confidence about the implementation of a smaller rate hike, by 50 basis points compared to 75 basis points by the Fed previously.

Even market analysts unanimously welcomed the news of the shrinking inflation rate.

The good news also gave a jump to equities but trading in risk assets calmed down towards the close.

The Dow Jones Industrial index rose 0.1%, the S&P 500 index climbed 0.74% and the Nasdaq Composite jumped 1%.

In Europe, the STOXX 600 index rose 1.3% with MSCI's gauge of global shares up 1%.

The morning trading session in Asia saw Japan's Nikkei 225 up 0.4%, Topix up 0.26%, South Korea's Kospi up 0.41% and Australia's S&P/ASX 200 up 0.27%.

On the opposite side, US Treasury yields fell with the 10-year note down 9.2 basis points at 3.519% while the 30-year yield was down 3.2 basis points at 3.544% and the 2-year yield was down 16.4 points at 4.239%.

Accompanying the fall was the dollar with the greenback index plunging 1%, a drop of more than 5% for the past 3 months as investors expect inflation to peak.