Marketmind: Cooling, and melting down

(Reuters) – A look at the day ahead in Asian markets from Lewis Krauskopf

The inflation datapoint investors have been itching for finally arrived and set off a feverish risk-on rally in markets. But such joy has been deflated throughout 2022 and there are reasons to be skeptical this time too.

First the data: U.S. consumer prices rose less than expected in October, pushing the annual increase below 8% for the first time in eight months.

News of a cooling CPI set off a massive rally on Wall Street. The S&P 500 jumped 5.5%, its biggest one-day gain since April 2020, and the tech-heavy Nasdaq Composite soared over 7%. Amazon and Nvidia were among the stocks posting double-digit gains on the day.

Meanwhile, U.S. Treasury yields sank, with the benchmark 10-year yield falling to a five-week low, and the U.S. dollar tumbled, a reversal of trends that have prevailed in 2022.

The CPI report prompted hopes the Federal Reserve may be able to pull back on its interest rate hikes, after the central bank’s aggressive tightening had crushed markets this year.

But while encouraging, the CPI report remained just one datapoint and Fed officials likely will want to see more evidence inflation has come off the boil before changing their stance dramatically.

Indeed, the Fed will get one more CPI reading before the bank’s policymakers gather again, with November’s report due just as their December meeting starts.

Investors have been burned before this year as stocks have rebounded a handful of times, only to sink back to lower lows as bear market rallies petered out.

And it was hard to be too upbeat about risk-taking given the week’s turbulence in cryptocurrencies. In the latest developments for FTX, the crypto exchange — which has been buffeted by a rush of customer withdrawals — was scrambling to raise about $9.4 billion from investors and rivals, a source told Reuters.

Bitcoin clawed back some of its losses for the week and was last around $17,900. A year ago to the day, it hit its all-time high of $69,000.

Happy anniversary, indeed.

Key developments that could provide more direction to markets on Friday:

India industrial output

UK GDP (Q3)

U.S. UMich consumer sentiment (November)

GRAPHIC-U.S. inflation gauges https://graphics.reuters.com/USA-STOCKS/xmvjkgzogpr/inflation.png

(Reporting by Lewis Krauskopf in New York; Editing by Jonathan Oatis)

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