Markets cheer cooling inflation, the dollar hitting a two-month low

After China announced that it would ease some Covid measures, stock futures rose early Friday, and the dollar hit its two-month lows boosting optimism fueled by better-than-feared inflation data that supported a broad market rally Thursday.

There was a strong rally across the markets after the Bureau of Labor Statistics reported that consumer prices rose at a slower pace than expected in October. This gave investors hope that inflation may be slowing down. U.S. Treasury yields plummeted following the release of the data, while technology stocks rose.

In October, the Consumer Price Index increased by 0.4% for the month and by 7.7% compared to a year ago. By Dow Jones estimates, the index was expected to gain 0.6% and 7.9% respectively.

Although inflation elsewhere is showing little signs of slowing, while one number does not make a trend, markets have latched onto the weakened number, pushing European markets sharply higher, with the DAX closing well above its 200-day SMA and at its highest level since June.

In another example of diverging fortunes when it comes to inflation, German CPI inflation is expected to reach a record high of 11.6% for October later today, while UK CPI inflation could move up to 10.5% next week.

It seems that markets across the board are euphoric following the cooler US CPI news on Thursday. However, the report does not suggest that inflation has been eradicated from the broader economy, even though the CPI does indicate that it is moving in the right direction. Furthermore, it does not imply that the Fed's job to restore price stability has been completed.

There was an increase of 210 points or 0.62% for futures tied to the Dow Jones Industrial Average. S&P 500 futures rose 0.7%, while Nasdaq 100 futures rose 0.93% or 108 points.

The major averages posted their largest one-day rally since 2020 during the trading session on Thursday. The Dow jumped more than 1,200 points. The S&P 500 rose by 5.5%, while the Nasdaq Composite rose by about 7.4%.

It appears that all of the indexes are on track for a positive week. It is projected that the Dow will gain 4% weekly, while the S&P 500 will gain 4.9% and the Nasdaq will gain 6.1%, respectively, weekly.

A sharp contraction in UK GDP is expected today, with the outlook for Q4 unlikely to be much better. However, next week, the government will cut spending and raise taxes to plug what the OBR estimates will be a fiscal black hole of £40 billion. This is based on varying growth, inflation, and interest rates.

It is already known that retail sales in August and September were very weak, along with industrial and manufacturing production. Therefore, it seems likely that this morning's survey data will indicate a sharp slowdown in the UK economy, despite a surprise upward revision to Q2 GDP of 0.2% from 0.1%.