FirstFT: Easing US inflation triggers relief rally

Equities on Wall Street yesterday had their strongest day in more than two and a half years as the rapid rise in inflation slowed, leading investors to bet that the Federal Reserve’s aggressive tightening of monetary policy may finally begin to ease.

The Fed has increased its benchmark policy rate by 0.75 percentage points at each of its past four meetings, but after data yesterday confirmed inflation rose by a less than expected annual rate of 7.7 per cent in October, the slowest pace since January, rate rise expectations eased.

Stocks, however, soared. The S&P 500 index finished 5.5 per cent higher — its biggest gain since April 6 2020. The Nasdaq Composite, which is dominated by technology and high-growth companies, closed up 7.4 per cent.

The yield on the benchmark 10-year Treasury note fell 0.27 percentage points to 3.82 per cent, its sharpest move since March 2020, and the dollar dropped 2.3 per cent against a basket of six peers in its worst day in seven years.

In futures markets, investors bet there was an 85 per cent chance of a smaller 0.5 percentage point rise at the Fed’s next meeting on December 13 and 14, compared with a 57 per cent chance on Wednesday.

“The fact the Fed may slow down from here means what could break out is a conversation not just about recession rather than inflation, but a conversation about maybe avoiding a recession entirely,” said Jim Paulsen, chief investment strategist at The Leuthold Group, a research firm.

Patrick Harker, president of the Philadelphia Fed, and Lorie Logan, president of the Dallas Fed, yesterday became the latest Fed officials to back a slower pace of rate rises by the US central bank. Their counterparts at the Boston, Chicago and Richmond branches of the Fed have already called for the supersized rate rises to slow.

“In the upcoming months, in light of the cumulative tightening we have achieved, I expect we will slow the pace of our rate hikes as we approach a sufficiently restrictive stance,” Harker said yesterday.

Do you think the US will avoid recession? Email your thoughts to firstft@ft.com and I may feature an extract in a future edition of FirstFT or vote in our latest poll. Thanks for reading — Gordon

Five more stories in the news

1. Global regulators circle FTX Authorities in Japan, Australia and the Bahamas, where FTX is based, have all taken actions today as worries mount that customers in one of the world’s biggest digital asset venues could face severe losses. Sam Bankman-Fried, the FTX founder, is racing to raise as much as $8bn to save his company.

2. UK economy shrinks The UK economy contracted more than expected in September, suggesting predictions by the Bank of England that the country is heading for a prolonged recession could be true. Gross domestic product fell 0.6 per cent between August and September, the Office for National Statistics said. Next week chancellor Jeremy Hunt will unveil his autumn Budget when he is expected to announce spending cuts and higher taxes.

3. China eases Covid quarantine rules Beijing has eased coronavirus quarantine requirements for close contacts and international travellers, in the first relaxation of Xi Jinping’s zero-Covid strategy since the Communist party congress last month. The relaxation comes as cases in the country continue to rise, with 10,000 new infections confirmed today, the highest daily tally since late April.

4. Judge blocks Biden’s student debt relief programme A US federal judge has blocked Joe Biden’s scheme to forgive thousands of dollars in student loan debt for millions of Americans, dealing a blow to a White House policy targeting a primary concern of younger voters. Mark Pittman, a judge in the northern district court of Texas, ruled that Biden’s plan to forgive student loan debt was “unlawful”.

5. Elon Musk wrestles with Twitter’s finances The social media platform suffered another exodus of executives yesterday while its new billionaire owner told a meeting of staff that bankruptcy was not out of the question. “Honestly, it feels like chaos,” one staffer told the FT.

Have you kept up with the news this week? Take our quiz.

The days ahead

Biden travels to COP27 The US president will arrive at the global climate conference with momentum from his party’s better than expected performance in the midterm elections. But he will come under pressure to pledge to larger reductions in US emissions in order to meet Paris accord commitments. After his trip to Sharm el-Sheikh, Biden flies to Asia for the G20 summit where he will hold his first in-person talks with Chinese president Xi Jinping since becoming president.

Economic data The University of Michigan will release new data that is expected to show a small decrease in US consumer sentiment and also shed new light on Americans’ inflation expectations. In Mexico, figures are expected to confirm that industrial output rose by 0.1 percentage points in September, taking the annual rate up to 4.5 per cent from 3.9 per cent, according to economists polled by Refinitiv.

National holidays Armistice Day or Remembrance Day commemorations take place across Europe, the US and the Commonwealth today and over the weekend to remember those who lost their lives in conflict. In the US it is the Veterans Day federal holiday.

What else we’re reading

Red and Blue America refuse to budge The most stunning takeaway from the US midterm elections, writes John Burn-Murdoch, is not how much has changed, but how little. The elections resulted in the second lowest amount of vote-switching in a US election since data collection began in 1952 — narrowly beaten by the general election two years ago.

Trump and Murdoch’s marriage of convenience breaks down Someone who has switched, albeit within the Republican party, is Rupert Murdoch. The media mogul’s backing of former president Donald Trump has ruptured in spectacular fashion following the midterm elections.

Big Tech job cull may be the start of things to come Massive job cuts are the most visible sign of downsizing across the tech industry, writes Richard Waters, but behind the lay-offs there is a story of misjudgment and weak management and a new, low-growth phase ahead.

Managing the polycrisis era for executive pay Senior pay packets have recovered nicely from the bout of pandemic-induced austerity. Now it is time to show if Covid-era notions of solidarity and alignment were genuine, writes Helen Thomas.

The ethical case for watching this World Cup Many human rights activists, NGOs and trade unions believe the Qatar-hosted tournament can be used to shine a light on myriad abuses, including the exploitation of labourers who built the stadiums. But Simon Kuper argues that not boycotting may do more good than not.

Film

Critics Danny Leigh and Leslie Felperin review the week’s six best cinema releases, including the return of Black Panther, the first since the tragic death of Chadwick Boseman.