Stock Futures Rally After S&P 500 Jumps 5.5% on CPI News

US Stock futures are in the green today after Chinese authorities said they would relax pandemic measures, improving the market sentiment further following yesterday’s cooler-than-expected CPI print in the US. The jump in futures comes a day after US equities recorded their biggest one-day gains since 2020.

Cooler Inflation Data and Relaxed Coronavirus Restrictions in China Boost Stock Futures

US stock futures rose Friday driven by investor optimism following positive inflation data released Thursday. The new consumer price index (CPI) showed that inflation in October eased to 7.7%, cooler than analysts’ estimates of 8% and down from the previous report of 8.2%.

Dow Jones Industrial Average futures rose 0.3% or 107 points. Similarly, S&P 500 futures climbed 0.25% while Nasdaq 100 remained relatively flat.

In addition to better-than-expected CPI data, stock futures were also boosted by China’s plans to ease certain coronavirus measures such as cutting quarantine time for international travelers. This has also driven US-listed Chinese stocks in premarket trading, with Alibaba, Pinduoduo, and JD.com rising 5%, 5.5%, and 8%, respectively.

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Markets Hope for a Slightly Weaker Pace of Rate Hikes

Friday’s rally represents an extension of a strong jump in US stocks Thursday, when major indexes saw their largest single-day gains since 2020. The benchmark S&P index rose 5.5%, alongside sharp jumps in the Dow and the Nasdaq Composite.

“Markets across the board are euphoric following the cooler CPI this morning… But today’s CPI report, while indicating that inflation is moving in the right direction, does not suggest that inflation has been rooted out of the broader economy. And it does not suggest that Fed’s job to restore price stability is complete.”

– Quincy Krosby, chief global strategist for LPL Financial.

The Federal Reserve also welcomed the latest inflation data, but San Francisco Fed president Mary Daly and Dallas Fed president Lorie Logan said the central bank still has a long way to go in its fight against inflation. Current inflation levels of 7.7% remain far away from the Fed’s target of 2%.

Still, the positive CPI reading allowed market participants to change their interest rate hike forecasts, with investors now expecting the Fed to slow the pace if the rate increases at the next meeting. The Fed has delivered six consecutive rate hikes in 2022, four of which were jumbo 75 bps increases.

CME FedWatch tool shows that the probability of a 50 bps interest rate hike in December jumped to 85%. This marks a sharp increase from the 52% the tool offered prior to the CPI release.

Do you think the Fed is done with jumbo interest rate hikes? Let us know in the comments below.