AFP

Stocks surged while the dollar dropped 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 Labor 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 percent. 

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 percent. 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.

– Key figures around 1430 GMT –

London – FTSE 100: UP 1.0 percent at 7,519.85 points

Frankfurt – DAX: UP 2.2 percent at 14,614.89

Paris – CAC 40: UP 2.1 percent at 6,788.81

EURO STOXX 50: UP 2.5 percent at 4,018.36

New York – Dow: UP 2.1 percent at 34,708.92

Tokyo – Nikkei 225: UP 0.4 percent at 27,954.85 (close)

Hong Kong – Hang Seng Index: UP 0.7 percent at 19,596.20 (close)

Shanghai – Composite: DOWN 0.1 percent at 3,176.33 (close)

Euro/dollar: UP at $1.0660 from $1.0539 on Monday

Dollar/yen: DOWN at 134.82 yen from 137.66 yen

Pound/dollar: UP at $1.2430 from $1.2268

Euro/pound: DOWN at 85.75 pence from 85.78 pence

Brent North Sea crude: UP 2.1 percent at $79.66 per barrel

West Texas Intermediate: UP 1.9 percent at $74.58 per barrel

burs-rl/bp

Betting on robust demand for international travel, United Airlines on Tuesday unveiled an order of 100 new Boeing 787 Dreamliners with options for an additional 100 jets.

The huge order, the largest by an American carrier for this class of aircraft, marks a victory for Boeing, which has targeted mid-decade as the period it expects to return to its pre-pandemic financial health after the 737 MAX scandal and other woes.

United Chief Executive Scott Kirby, who also announced a giant Boeing and Airbus order in June 2021 ahead of rivals, predicted the airline’s ambitious 787 plan would pay off for the carrier during a capacity-constrained period.

“United is really uniquely positioned to grow in a way that’s going to be a huge challenge for others,” Kirby told reporters.

White House Chief of Staff Ronald Klain touted the order, saying on Twitter, “Another day, another huge investment in US manufacturing — advanced production, high-quality jobs in the USA.”

United expects deliveries of the jets to take place between 2024 and 2032, aiming the new aircraft as a replacement for the 767 fleet that will be removed from service by 2030. 

The Dreamliner saves 25 percent of the carbon emission compared with the jets being retired.

United executives did not offer an estimate as to the total potential cost of the contracts, but projected that capital spending would rise to $9 billion in 2023 and $11 billion in 2024.

United said it also exercised options for an additional 44 737 MAX planes between 2024 and 2026, and ordered 56 more MAX jets for 2027 and 2028.

– Production ramp-up –

After the 737 MAX, the 787 Dreamliner — which flies transatlantic journeys as well as other international itineraries — has been Boeing’s other leading source of orders and deliveries.

United officials said beefing up the fleet of 787s made sense at a time when the carrier already flies the jet, making it an easy transition for pilots and helping the company add capacity quickly.

But United officials praised the A350, the rival widebody offering from European aerospace giant Airbus, and said they still plan to take delivery of 45 of the Airbus jets from 2030.

For Boeing, the United order signals a victory for the 787, for which production was slowed to a trickle while the company halted deliveries of new jets for more than a year while addressing production problems.

Boeing resumed 787 deliveries in August after getting the green light from the Federal Aviation Administration, which has heavily scrutinized Boeing processes in the aftermath of the 737 MAX crisis.

“This is an opportunity for Boeing to ramp up at Charleston, perhaps with two production shifts,” said Michel Merluzeau, director of aerospace and defense analysis at AIR consultancy.

In October 2020, Boeing consolidated manufacturing of the 787 to Charleston, ending production of the wide-body jet in Washington state in an efficiency move as it battled financial losses during the Covid-19 downturn.

At its investor day in November, Boeing officials outlined a plan to restore 787 production to 10 passenger jets per month. 

Shares of Boeing gained 0.9 percent to $187.91 in early trading Tuesday, while United rose 1.3 percent to $44.80.

US consumer inflation eased in November, according to government data released Tuesday, bringing some relief to policymakers with the smallest annual increase in nearly a year.

Officials are closely eying the monthly inflation report for signs that painfully high consumer prices are definitively moderating at last, as surging costs of living force households to dip into their savings.

The consumer price index (CPI), a closely-watched measure of inflation, jumped 7.1 percent from a year ago, down from 7.7 percent in October, according to Labor Department figures.

But the overall number is still about three times the pre-pandemic pace.

Prices ticked up 0.1 percent from October to November, a smaller-than-expected increase after a prior 0.4 percent jump, the latest data showed.

Meanwhile, core prices, which exclude the volatile food and energy segments, rose 0.2 percent in November, down from a 0.3 percent pick-up in October.

“The index for shelter was by far the largest contributor to the monthly all items increase, more than offsetting decreases in energy indexes,” the Labor Department said in a statement.

Food inflation nudged up as well, underscoring the financial squeeze that households are still experiencing.

While an improvement from before, the data likely reinforces official views that costs remain far too high, and US central bankers are poised to push on in their quest to cool the world’s biggest economy.

The Federal Reserve has raised the benchmark lending rate six times this year in hopes of lowering demand, walking a fine line between reining in prices and triggering a recession.

The lower inflation figure is likely to fuel optimism for easing in the Fed’s aggressive campaign as its policy-setting committee starts a two-day meeting Tuesday that is widely expected to culminate in a smaller rate hike.

– Right direction –

Consumer inflation remains much higher than the Fed’s longer-term goal of two percent, even as prices are “moving in the right direction,” said economist Rubeela Farooqi of High Frequency Economics Tuesday.

But “further sustained improvement” over the coming months could allow the Fed to slow its pace of rate hikes more, she added.

While goods prices are decelerating, they still contribute heavily to CPI changes and a reversal of the trend will take time, she warned in an earlier analysis.

Shelter inflation remains a key factor behind inflation, and James Knightley of ING told AFP that while the asking price for rents appears to be falling in many cities, most people are still paying “considerably more” than last year.

Analysts have also been watching price increases in services, given that quickly rising wages feed into this segment and “continue to run hot,” he noted.

“This is clearly an area of concern for the Fed,” he said.

US consumer inflation eased in November, according to government data released Tuesday, bringing some relief to policymakers with the smallest annual increase over the past year.

Officials are closely eying the monthly inflation report for signs that painfully high consumer prices are definitively moderating at last, as surging costs of living force households to dip into their savings.

The consumer price index (CPI), a closely-watched measure of inflation, jumped 7.1 percent from a year ago, down from 7.7 percent in October, according to Labor Department figures.

But the overall number is still about three times the pre-pandemic pace.

Prices ticked up 0.1 percent from October to November, a smaller-than-expected increase after a prior 0.4 percent jump, the latest data showed.

Meanwhile, core prices, which exclude the volatile food and energy segments, rose 0.2 percent in November, down from a 0.3 percent pick-up in October.

“The index for shelter was by far the largest contributor to the monthly all items increase, more than offsetting decreases in energy indexes,” the Labor Department said in a statement.

Food inflation nudged up as well, underscoring the financial squeeze that households are still experiencing.

While an improvement from before, the data likely reinforces official views that costs remain far too high, and US central bankers are poised to push on in their quest to cool the world’s biggest economy.

The Federal Reserve has raised the benchmark lending rate six times this year in hopes of lowering demand, walking a fine line between reining in prices and triggering a recession.

The lower inflation figure is likely to fuel optimism for easing in the Fed’s aggressive campaign as its policy-setting committee starts a two-day meeting Tuesday that is widely expected to culminate in a smaller rate hike.

– Right direction –

Consumer inflation remains much higher than the Fed’s longer-term goal of two percent, even as prices are “moving in the right direction,” said economist Rubeela Farooqi of High Frequency Economics Tuesday.

But “further sustained improvement” over the coming months could allow the Fed to slow its pace of rate hikes more, she added.

While goods prices are decelerating, they still contribute heavily to CPI changes and a reversal of the trend will take time, she warned in an earlier analysis.

Shelter inflation remains a key factor behind inflation, and James Knightley of ING told AFP that while the asking price for rents appears to be falling in many cities, most people are still paying “considerably more” than last year.

Analysts have also been watching price increases in services, given that quickly rising wages feed into this segment and “continue to run hot,” he noted.

“This is clearly an area of concern for the Fed,” he said.

The Bank of England will test so-called shadow banking institutions such as pension funds, that played a key role in recent UK bond market chaos, it said Tuesday.

The BoE was forced to buy UK debt in September in an emergency intervention to avert financial catastrophe, after a controversial tax-slashing budget by the government caused bond yields to soar and sparked panic.

The crisis, which sparked the downfall of former Conservative prime minister Liz Truss, threw the spotlight on non-banking financial institutions (NBFIs) and their risk to stability, the BoE noted Tuesday. 

“There is a need to develop stress-testing approaches to understand better the resilience of NBFIs to shocks” and their links with commercial lenders and markets, it added in a report.

“The bank will run, for the first time, an exploratory scenario exercise focused on NBFI risks, to inform understanding of these risks and future policy approaches,” it revealed.

September’s turmoil, centred on the exposure of pension funds to UK debt market volatility, highlighted a “material risk” to stability, the BoE warned.

Some pension funds use Liability Driven Investments (LDIs), which are linked to financial derivatives and intended to help ensure that the income generated by the assets covers their long-term commitments.

However, the chaos caused the value of assets, notably government bonds, to tumble.

That forced pension funds to sell the bonds, known as gilts, to swiftly access liquidity, sending yields rocketing.

“The rapid and unprecedented increase in yields exposed vulnerabilities associated with LDI funds, in which many defined benefit pension schemes invest,” the BoE said.

“This led to a vicious spiral of collateral calls and forced gilt sales that risked leading to further market dysfunction, creating a material risk to UK financial stability.”

The BoE itself does not regulate LDIs, but wants pension fund watchdogs to ensure institutions have sufficient collateral in LDI funds to withstand further shocks.

Truss quit in October, replaced by Rishi Sunak and the new Conservative prime minister has reversed her unfunded budget that also sent the pound slumping to a record low against the dollar.