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Inflation Reduction Rally

Updated: Nov 22, 2022

USA inflation data released on Thursday resulted in the largest rally in global equities after March 2020 post-lockdown rally. The data has been stable with a monthly rise of 0.4% but the overall yearly growth was below the estimates assisted by the lower contribution from the energy and goods segment. The largest fall was in gas prices with the largest rise in fuel oil on monthly basis.

Post the data release the most important reaction was the Fed rate swap markets where the odds of a 75bps hike in the December meeting became 0, along with it cane some soothing comments from Federal Reserve Board members with a tilt in favour of a small hike from in December.

Given that inflation is at its lowest point since Feb/ March 2022 and the interest rate is probably going to increase at a slower rate. This will create a cautiously optimistic trend till the next CPI release with support of Buyback and Algo buying which is estimated at $15 Bn every day till year-end.

But it is said that it is always wise not to hunt in the dark even though night vision equipment might provide some help. The current winter is the same as recent weeks have made estimations of better times ahead but such sentiment cannot be taken as the reason for a long-term investment. Keeping a track of Volatility Indices will give a better view of things and even though lower than recent highs the risk of volatility is still elevated.


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