Economy

NEW YORK (Reuters) – A benign U.S. inflation report is bolstering hopes that the Federal Reserve can bring down consumer prices without hurting the economy, a so-called Goldilocks environment that investors believe will benefit stocks and bonds. Both asset classes have ripped higher in November following a months-long wobble, fueled by hopes that the Fed was unlikely to deliver any more of the rate increases that have spurred volatility throughout markets since early last year. Inflation data released on Tuesday supported the view that a turning point is near: consumer prices were unchanged on a monthly basis for October, the first such reading in more than a year and a softer figure than analysts were expecting. At the same time, there have been few indications that tighter monetary policy is severely hurting the economy, backing the idea that prices can cool further without damaging growth. “The broader market has been challenged with this consensus negative view about both a recession and inflation,” said Eric Kuby, chief investment officer at North Star Investment Management Corp. “Reality is telling a different story. This does feel like a Goldilocks moment for the entire market.”The data fueled a powerful rally in stocks and bonds. The benchmark S&P 500 ended up 1.9% on the day, its biggest one-day rise since late April. The S&P 500 is up 9% from its October lows, putting its year-to-date gain at 17%. The benchmark 10-year yield, which moves inversely to bond prices, was at its lowest level since late September – having fallen over 50 basis points from a 16-year high set last month. The jump in stock prices was accompanied by a wave of bullish bets in the U.S. equity options markets, as traders ramped up wagers on more gains and threw in the towel on bearish positions. Call options, which benefit from rising prices, outnumbered bearish puts by their biggest margin in three and half months, according to Trade Alert data.Meanwhile, investors scrambled to cover bearish bets – especially on the high growth and technology stocks that have struggled amid elevated interest rates. The Thomson Reuters (NYSE:TRI) United States Most Shorted Index rose 6.5%, its largest one-day gain in a year. “Crowded short names are also up a lot … that to me is a lot of chasing and covering,” said Daniel Kirsch, head of options at Piper Sandler.Some parts of the market that have underperformed this year, such as the small-caps focused iShares Russell 2000 ETF, drew heavy bullish options activity on Tuesday, said Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets. The Russell 2000, which the ETF tracks, was up 5.4% on Tuesday, its biggest daily gain in a year. The index is up 2.1% this year. DOVISH EXPECTATIONSHigher rates have been a worry for investors since the Fed started its hiking cycle in March of 2022. Rising rates tend to slow economic growth by raising the cost of borrowing for companies and consumers. They also dull the attractiveness of equities by driving up bond yields and making fixed income and other yield-bearing investments more competitive with stocks. However, in the wake of the inflation data, Fed funds futures traders on Tuesday expected the Fed to forgo any more hikes and enact about 100 basis points of interest rate cuts in 2024, compared to 75 basis points of cuts before the CPI report.That tallied with expectations heading into the data. According to BofA Global Research’s monthly survey out Tuesday, 76% of fund managers were convinced the Fed had finished its rate hike cycle, up from 60% in October and the highest level since the survey began tracking the topic in May.The CPI data is “telling us that the Fed is done, there’s nothing left for it to do here,” said Thomas Hayes, chairman at hedge fund Great Hill Capital.Still, some investors believed it was too early to call a victory in the fight against inflation. “Inflation is still too high and the labor market still too tight for the Fed to … announce an end to the rate-hiking cycle,” wrote Brian Rose, senior US economist at UBS Global Wealth Management. “Such an announcement is likely to be at least three months away unless the data takes a sudden turn toward the weaker side.”Others were wary that the Fed could risk hurting the economy by keeping monetary policy too tight for too long. “The question now for the Fed is whether they continue to believe that slowing the economy into recession is needed to completely conquer inflation,” said Jamie Cox, managing partner for Harris Financial Group. “I certainly hope not.” More

Albanese’s government has taken credit for patching up ties with China since coming to office last year. China has lifted most trade blocks imposed amid a 2020 diplomatic dispute after Australia called for an inquiry into the origins of COVID-19.”I remain very confident … that by Christmas all of these trade impediments will be removed,” trade minister Don Farrell told ABC Radio from San Francisco, where he is attending Asia-Pacific Economic Cooperation (APEC) meetings.”And we will have restored that stable relationship that we want with our largest trading partner.”Farrell said he hoped to resolve the issues over lobster and beef, which related to bio-security rules, ahead of a meeting with Chinese counterpart Wang Wentao in San Francisco. More

Stay informed with free updatesSimply sign up to the More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.Asian markets open on Wednesday with stocks, risk assets and investor sentiment around the world soaring after cooling U.S. inflation data on Tuesday looked to close the door on more rate hikes and pave the way for the fabled economic ‘soft landing’.Some of Tuesday’s U.S. market moves were eye-popping – two- and five-year bond yields plunged more than 20 basis points; the Nasdaq rose more than 2%; the Russell 2000 index rose 5% for its best day in a year; the dollar fell 1.5% for its worst day in a year; and the Aussie and New Zealand dollars both leaped 2%.This should be rocket fuel for Asia on Wednesday, although there is no shortage of event risk.Top-tier data releases include third quarter Japanese GDP and Chinese retail sales, industrial output, investment and unemployment figures for October, while U.S. and Chinese Presidents Joe Biden and Xi Jinping meet at the Asia Pacific Economic Cooperation forum in San Francisco.Biden and Xi have only met once before, and this is Xi’s first visit to the U.S. since 2017. Xi is hoping to persuade Biden to ease up on tariffs and export controls aimed at keeping the most advanced semiconductors from being sent to China.In a separate dinner with business leaders, he will also be looking to boost flagging investment by U.S. firms in China. Foreign investors have pulled huge sums out of China this year as the economy has faltered and tensions with the West have deepened.Ahead of their talks, China’s yuan climbed to a three-month high of 7.25 per dollar on Tuesday, rising around 0.5% for its biggest one-day gain in two months.The latest retail sales, industrial output, investment and unemployment figures for October will give an insight into whether China’s economy is maintaining the surprisingly strong momentum it showed in the third quarter.Citi’s China economic surprises index has been in positive territory for almost a month, suggesting activity is strengthening or analysts are lowering their expectations. Or a bit of both.Japan’s economic surprises index, on the other hand, just slumped into negative territory and is the lowest since June. The first reading of third quarter GDP on Wednesday could lift it again – the bar would appear low enough.Economists reckon the economy contracted 0.1% from the April-June period and shrank 0.6% on an annualized basis. That would represent a significant slowdown from growth rates of 1.2% and 4.8%, respectively, in the previous quarter.The corporate focus in Asia on Wednesday turns to the third quarter earnings reports from China’s JD (NASDAQ:JD).Com and Tencent Holdings (OTC:TCEHY). JD.Com is expected to report a 2.3% increase in revenue to CNY249.258 billion and CNY5.77 earnings per share.Here are key developments that could provide more direction to markets on Wednesday:- Japan GDP (Q3, preliminary)- China retail sales, industrial output, investment, unemployment (October)- Presidents Joe Biden and Xi Jinping meet (By Jamie McGeever; Editing by) More

The total financial remedies in fiscal 2023 were the second-highest in SEC history, following last year’s record of $6.4 billion, including both disgorgement and interest in addition to civil penalties. The figures underscore how the agency has sought to more aggressively police violations and misconduct under Democratic leadership.The SEC barred 133 individuals from serving as directors and officers of public companies, the highest number of such bans in a decade, the SEC said in a statement. The SEC’s tally included settlements with 25 broker-dealers, advisers and others over employees’ use of personal devices and apps including WhatsApp, the agency said. The regulator obtained a $178.6-million civil penalty against Danske Bank to resolve charges of misleading investors over its efforts to combat money-laundering and $56 million in fines and other remedies against mining firm Vale SA (NYSE:VALE) over false and misleading disclosures leading up to a dam collapse that killed 270 people. The year’s enforcement work also included high-profile lawsuits against players in the cryptocurrency sector, such as FTX founder Sam Bankman-Fried. More

Stay informed with free updatesSimply sign up to the More

The consumer price index was flat in October from the previous month but increased 3.2% from a year ago. Both were below Wall Street estimates, sparking a major rally on Wall Street.
Excluding volatile food and energy prices, the core CPI rose 0.2% and 4%, against the forecast of 0.3% and 4.1%. The annual rate was the smallest increase since September 2021.
The flat reading on the headline CPI came as energy prices declined 2.5% for the month, offsetting a 0.3% increase in the food index.
Following the report, traders took any potential Fed rate hikes almost completely off the table, according to CME Group data.

Inflation was flat in October from the previous month, providing a hopeful sign that stubbornly high prices are easing their grip on the U.S. economy and giving a potential green light to the Federal Reserve to stop raising interest rates.
The consumer price index, which measures a broad basket of commonly used goods and services, increased 3.2% from a year ago despite being unchanged for the month, according to seasonally adjusted numbers from the Labor Department on Tuesday. Economists surveyed by Dow Jones had been looking for respective readings of 0.1% and 3.3%.

The headline CPI had increased 0.4% in September.

Excluding volatile food and energy prices, the core CPI increased 0.2% and 4%, against the forecast of 0.3% and 4.1%. The annual level was the lowest in two years, down from 4.1% in September, though still well above the Federal Reserve’s 2% target. However, Fed officials have stressed that they want to see a series of declines in core readings, which has been the case since April.
Markets spiked following the news. The Dow Jones Industrial Average roared higher by nearly 500 points as Treasury yields fell sharply. Traders also took any potential Fed rate hikes almost completely off the table, according to CME Group data.
“The Fed looks smart for effectively ending its tightening cycle as inflation continues to slow. Yields are down significantly as the last of investors not convinced the Fed is done are likely throwing in the towel,” said Bryce Doty, portfolio manager at Sit Fixed Income Advisors.
The flat reading on the headline CPI came as energy prices declined 2.5% for the month, offsetting a 0.3% increase in the food index. It was the slowest monthly pace since July 2022.

Shelter costs, a key component in the index, rose 0.3% in October, half the gain in September as the year-over-year increase eased to 6.7%. Within the category, owners equivalent rent, which gauges what property owners could command for rent, increased 0.4%. A subcategory that includes hotel and motel pricing dropped 2.9%.
“This is a game changer,” Paul McCulley, former chief economist at Pimco and now an adjunct professor at Georgetown University, said on CNBC’s “Squawk on the Street.” “We’re having a day of rational exuberance, because the data clearly show what we’ve been waiting for for a long time, which is a crack in the shelter component.”
Chicago Fed President Austan Goolsbee called the report “slow but clear progress” on getting inflation back to healthy levels.
Vehicle costs, which had been a key inflation component during the spike in 2021-22, fell on the month. New vehicle prices declined 0.1%, while used vehicle prices were off 0.8% and were down 7.1% from a year ago.
Airfares, another closely watched component, declined 0.9% and are off 13.2% annually. Motor vehicle insurance, however, saw a 1.9% increase and was up 19.2% from a year ago.
The report comes as markets are closely watching the Fed for its next steps in a battle against persistent inflation that began in March 2022. The central bank ultimately increased its key borrowing rate 11 times for a total of 5.25 percentage points.
While markets overwhelmingly believe the Fed is done tightening monetary policy, the data of late has sent conflicting signals.
Nonfarm payrolls in October increased by just 150,000, indicating the labor market finally is showing signs that it is reacting to Fed efforts to correct a supply-demand imbalance that has been a contributing inflation factor.
Labor costs have been increasing at a much slower pace over the past year and a half as productivity has been on the rise this year.
Real average hourly earnings — adjusted for inflation — increased 0.2% on a monthly basis in October but were up just 0.8% from a year ago, according to a separate Labor Department release.
More broadly speaking, gross domestic product surged in the third quarter, rising at a 4.9% annualized pace, though most economists expect the growth rate to slow considerably.
However, other indicators show that consumer inflation expectations are still rising, the likely product of a spike in gasoline prices and uncertainty caused by the wars in Ukraine and Gaza.
Fed Chair Jerome Powell last week added to market anxiety when he said he and his fellow policymakers remain unconvinced that they’ve done enough to get inflation back down to a 2% annual rate and won’t hesitate to raise rates if more progress isn’t made.
“Despite the deceleration, the Fed will likely continue to speak hawkishly and will keep warning investors not to be complacent about the Fed’s resolve to get inflation down to the long-run 2% target,” said Jeffrey Roach, chief economist at LPL Financial.
Even if the Fed is done hiking, there’s more uncertainty over how long it will keep benchmark rates at their highest level in some 22 years.
Don’t miss these stories from CNBC PRO: More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is a former president of South Africa and chairs the African High Level Panel on Illicit Financial FlowsThe question of what to do with global corporate tax abuse, including tax havens, has been on the international agenda for many years. And this is a vitally important matter for Africa and developing countries around the world. I am very concerned, therefore, by the possibility that progress on this matter may be stalled by a debate over how exactly to move forward.For many Africans, fulfilling the UN’s sustainable development goals (SDGs), outlined in the 2030 Agenda for Sustainable Development, is a matter of life and death. Unfortunately, their ability to meet these aims is hobbled by illicit financial outflows.In 2015, at an international conference on financing for development held in Addis Ababa, African delegates, and others from the countries in the Global South, endorsed a call for domestic resources to be mobilised to meet the SDGs. At the same time, they were also fully aware of the huge sums African states were losing thanks to hidden capital movements.A panel I led reported that African countries lose billions of dollars every year through this movement of capital, depriving us of the resources we need for development. The panel found that the largest contributors to illicit financial outflows — two-thirds — were commercial tax evasion and avoidance (including trade mis-invoicing and abusive transfer pricing by multinational companies), followed by organised crime and corruption in the public sector.Lower income countries are estimated to lose the equivalent of just under half their collective public health budgets every year to multinational corporations shifting profits into tax havens, and to wealthy individuals who hide their wealth in offshore jurisdictions.However, worries about international tax abuse and financial secrecy are not restricted to the countries in the south. These should be matters of global concern.As long ago as 1996, G7 leaders discussed tax schemes which would create harmful competition among states, eventually leading to the erosion of national tax bases. They called for a multilateral approach to limit such practices. The 2009 meeting of the G20 took this further, calling for global financial transparency and undertaking to act against financial secrecy jurisdictions and tax havens.Last year the Africa group at the UN tabled a resolution at the General Assembly urging the organisation to work on international tax co-operation. The resolution was adopted by consensus. A follow-up has now been tabled proposing that the General Assembly authorise the establishment of intergovernmental structures to work on a framework convention on international tax co-operation.In the coming days the UN could take a historic vote putting in place the processes required to produce the first ever global response to international tax abuse. Once established, a convention on international tax co-operation would avert an estimated global loss of $5tn to tax havens over the next decade.Unfortunately, progress on this vital issue could yet be derailed by a bitter dispute about whether this international convention should be negotiated through the UN or the OECD.African countries firmly believe that the UN is the right place to host these negotiations — for the obvious reason that this would ensure inclusivity and the participation of all countries in this process, and thus shared global ownership of the outcome.The valuable work already done on this tax matter by the OECD, which comprises 38 countries, would be fully integrated within the UN negotiations, involving all its 193 member states.Regrettably, the EU, together with the UK, continues to argue against the UN option.Obviously, it would be desirable if the current draft resolution before the General Assembly, which proposes that the UN should establish the bodies and processes to negotiate the tax convention, is adopted by consensus.Therefore, I appeal to the UK government and its counterparts in the EU to join the majority of UN member states, which represent the bulk of the world’s poor, and vote to sit at the same table as the representatives of developing countries. This is the best way to negotiate an outcome that would decisively change the lives of the world’s impoverished billions for the better. More