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Global stock markets surge as US inflation drops to 7.7%

A trader monitors the screen on a trading floor in London. Stock markets were up on Thursday
Global stock markets rose as the US inflation figure was down from 8.2% in September, and cooled more than economists had expected. Photo: Stefan/Reuters (Stefan Wermuth / reuters)

Wall Street and European stock markets reversed their losses in afternoon trade on Thursday, surging on news that US inflation slowed down more than expected.

Inflation eased last month to 7.7%, the lowest since January 2022, as the Federal Reserve raised interest rates to get a grip on prices that have surged at a historic pace.

This figure was down from 8.2% in September, and cooled more than economists had expected.

During October alone, prices rose by 0.4%, while annual core inflation dropped to 6.3%, down from 6.6%.

In London, the FTSE 100 (^FTSE) was 1.3% higher by the end of the session, after starting the day in the red, while the CAC (^FCHI) climbed 1.9% in Paris, and the Frankfurt DAX (^GDAXI) was 3.3% higher.

It also came as UK firms have cut back on hiring new workers for the first time since the COVID lockdowns in February 2021, as they struggled to find staff members.

Permanent placements fell in October, the first decline in 20 months, according to the latest report from KPMG and REC.

The data found that starting salary inflation slipped to 18-month low, as the jobs market cooled.

Separately, consumer confidence tumbled to its lowest point since the early days of the COVID-19 pandemic, after the mini-budget knocked optimism.

The latest consumer confidence report from YouGov and Cebr has found that people are the most pessimistic since the first lockdowns in April 2020.

Across the pond, the S&P 500 (^GSPC) surged 4.3% by the time of the European time, and the tech-heavy Nasdaq (^IXIC) advanced 5.8%. The Dow Jones (^DJI) edged 2.8% higher.

Stuart Clark, portfolio manager at Quilter Investors, said: “Inflation in the US has once again fallen, giving some momentum to the idea that the worst is now behind us. The rate is lower than expectations and this will provide some relief to consumers and the wider market, however it is worth noting food and shelter is still increasing, so not completely out of the woods yet.

"Inflation also remains stubbornly high, however, and as such the Federal Reserve is going to remain in a hawkish mood for some time to come.

"The jobs market remains strong, so for as long as inflation is this elevated and the economy doesn’t completely grind to a halt, the market will have to wait for any indication of a pivot or pause from the central bank."

Read more: Autumn budget: Hunt must find £43bn to keep public services going, TUC warns

Meanwhile, Seema Shah, at Principal Asset Management, said: "A 0.5% hike, rather than 0.75%, in December is clearly on the cards but, until we have had a run of these types of CPI reports, a pause is still some way out. Let the market enjoy today, it still has another 100bps or so of tightening to commiserate."

The pound (GBPUSD=X) surged 2.5% against the dollar immediately after the inflation figures, while government bond yields across the globe fell sharply as investors cut their bets on future rate rises.

Sterling is now on track for best day against dollar since March 2020.

Watch: How does inflation affect interest rates?

Asian markets pulled back overnight, with the Nikkei (^N225) falling 1% on the day in Japan, while the Hang Seng (^HSI) slumped 1.7%, and the Shanghai Composite (000001.SS) dipped 0.4%.

Market sentiment soured as the likely collapse of a major crypto exchange spooked investors.

Read more: Crypto tanks after FTX implosion

FTX, one of the world’s biggest cryptocurrency exchanges, is on the verge of collapsing after talks with its main rival about an emergency bailout fell apart.

Binance said in a statement: “Our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” according to the Wall Street Journal.

FTX’s founder, Sam Bankman-Fried, has reportedly told investors that the firm needs funding of up to $8bn after a surge in withdrawal requests from customers.

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