# The Good, The Bad and The Ugly Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-11-16 Category: TRADING Category URL: https://financedigest.com/category/trading Meta Title: US Inflation Data Surprises Markets, Fed Expected to Slow Meta Description: Rupert Thompson, Chief Economist at Kingswood, provides insights on the impact of US inflation data on market trends and forecasts for rate hikes and economic URL: https://financedigest.com/the-good-the-bad-and-the-uglyhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/istock-1310316502-1736814861070-compressed.jpg) _By_ **_Rupert Thompson,_** _Chief Economist at Kingswood_ Last week was a volatile one for markets generally, not just crypto. US equities surged as much as 5.5% on Thursday, leaving [global equities up 5.1% in local currency terms on the week](https://www.financedigest.com/rate-rise-fears-prompt-third-week-of-global-equity-funds-outflows.html "Rate rise fears prompt third week of global equity funds outflows"). Government [bonds also had a good week](https://www.financedigest.com/shares-and-bonds-nervy-as-rate-hike-week-looms.html "Shares and bonds nervy as rate-hike week looms"), led by US Treasuries where 10-year yields fell 0.3% to 3.86%. The [big event for markets as expected proved to be the US inflation](https://www.financedigest.com/big-fall-in-euro-zone-inflation-offers-little-help-for-ecb.html "Big fall in euro zone inflation offers little help for ECB") data, rather than the mid-term elections, although these too delivered a big surprise. US [inflation came in lower](https://www.financedigest.com/analysis-central-europes-path-to-lower-inflation-strewn-with-hazards.html "Analysis-Central Europe’s path to lower inflation strewn with hazards") than expected in October and was behind Thursday’s jump in equities. Both core and [headline prices undershot, leading to the headline inflation rate falling](https://www.financedigest.com/boes-mann-falling-headline-inflation-high-core-make-policy-difficult.html "BoE’s Mann: Falling headline inflation, high core, make policy difficult") back from 8.2% to 7.7%, the lowest since January, and the core rate slowing to 6.3% from 6.6%. This news means the Fed should be able, as Chair Powell recently suggested, to slow the pace of [rate hikes](https://www.financedigest.com/hopes-of-slowdown-in-rate-hikes-bolster-shares-ahead-of-u-s-gdp.html "Hopes of slowdown in rate hikes bolster shares ahead of U.S. GDP") in December from the 0.75% seen of late to 0.5%. Indeed, the market now is forecasting US [rates to peak](https://www.financedigest.com/investors-trim-bets-for-peak-bank-of-england-rate.html "Investors trim bets for peak Bank of England rate") next spring at a bit below 5%, rather than a bit above. Even though these numbers are encouraging, the [data is volatile and too much should not be read into one data point](https://www.financedigest.com/interoperability-of-data-to-accelerate-the-point-care-infectious-disease-diagnostics-market.html "Interoperability of data to accelerate the Point Care Infectious Disease Diagnostics Market"). The market reaction looks overblown and is probably explicable by the pessimistic positioning of institutional investors, if not [retail investors who all along have resisted the temptation to sell](https://www.financedigest.com/how-offline-conversion-will-help-retailers-sell-more-in-2023.html "How offline conversion will help retailers sell more in 2023 ") out. The fact is that core inflation continues to run above 6%, has yet to start slowing conclusively, and remains [well above the 2% Fed](https://www.financedigest.com/fed-keen-to-be-well-positioned-to-act-on-inflation-other-risks-minutes-show.html "Fed keen to be ‘well positioned’ to act on inflation, other risks, minutes show") target. The latest numbers will almost certainly not [trigger a major](https://www.financedigest.com/libor-reform-should-trigger-a-major-reassessment-of-corporate-treasuries-data-operations.html "LIBOR reform should trigger a major reassessment of corporate treasuries’ data operations") change in the Fed’s stance. Meanwhile, the US mid-term elections saw the Democrats fare unexpectedly well, with the best performance for a sitting President in twenty years. The red (Republican) wave failed to materialise with the Republicans likely to [end up with only a slim majority in the House](https://www.financedigest.com/uk-house-prices-end-2022-on-a-weaker-note-after-pandemic-boom.html "UK house prices end 2022 on a weaker note after pandemic boom") of Representatives and the Democrats taking control of the Senate. Policy gridlock – which [markets tend to like – now looks almost](https://www.financedigest.com/sulphur-recovery-technology-market-value-to-grow-by-almost-1-2-billion-during-2021-2031.html "Sulphur Recovery Technology Market Value to Grow by Almost .2 Billion During 2021-2031") certain. It also changes the outlook for the [Presidential election](https://www.financedigest.com/marcos-son-of-strongman-triumphs-in-philippines-presidential-election.html "Marcos, son of strongman, triumphs in Philippines presidential election") in two years’ time. The betting odds now show Ron De Santis, Governor of Florida, slightly more likely to win the Republican [Presidential nomination](https://www.financedigest.com/the-political-wildcard-what-is-trumps-us-presidential-nomination-doing-to-financial-markets.html "The political wildcard: What is Trump’s US presidential nomination doing to financial markets?") than Donald Trump. At the same time, Joe Biden seems emboldened to run again in 2024. There was also encouraging news in [China where the government introduced 20 measures aimed at improving its Covid](https://www.financedigest.com/first-foreign-covid-vaccines-head-to-china-from-germany.html "First foreign COVID vaccines head to China from Germany") control methods. While the recent flare up of covid infections and the approach of winter mean the near-term boost to growth is likely to be limited, it does appear to herald a wider [retreat from the zero covid policy](https://www.financedigest.com/yen-retreats-after-boj-policy-tweak-sparked-surge.html "Yen retreats after BOJ policy tweak sparked surge") next year which will be a big deal. Action was also [announced today to address the other big drag on Chinese growth](https://www.financedigest.com/impact-com-announces-continued-growth-in-first-quarter-of-2022.html "impact.com Announces Continued Growth in First Quarter of 2022") at the moment, namely the downturn in the property sector. Financial institutions have been told to [provide more support](https://www.financedigest.com/keysource-to-provide-critical-facilitiesmanagement-support-for-leeds-city-council.html "KEYSOURCE TO PROVIDE CRITICAL FACILITIESMANAGEMENT SUPPORT FOR LEEDS CITY COUNCIL") to struggling property developers. In the UK, [equities were up 1% on the week](https://www.financedigest.com/global-equity-funds-see-biggest-weekly-outflow-in-five-weeks.html "Global equity funds see biggest weekly outflow in five weeks"), a little less than the gain in global equities which was reduced to 2.1% in sterling terms by a rebound in the pound. [Sterling rose as much as 4.4% against the dollar](https://www.financedigest.com/sterling-steadies-vs-dollar-ahead-of-boe-ecb-meetings.html "Sterling steadies vs dollar ahead of BoE, ECB meetings") to $1.18 with the move all driven by a fall in the US currency on the back of the revival in risk appetite. UK [large cap underperformed small and mid cap substantially last week](https://www.financedigest.com/facebook-parent-meta-is-preparing-large-scale-layoffs-this-week-wsj.html "Facebook parent Meta is preparing large-scale layoffs this week – WSJ"). The [FTSE 100 was unchanged while the FTSE 250 gained](https://www.financedigest.com/ftse-100-opens-higher-informa-leads-gains.html "FTSE 100 opens higher, Informa leads gains") as much as 7.7%. The divergence was down both to the stronger pound, which hits large cap due to their bigger overseas exposure, and also the rebound in [risk appetite](https://www.financedigest.com/u-s-dollar-climbs-to-two-year-peak-as-risk-appetite-tumbles-yuan-drops.html "U.S. dollar climbs to two-year peak as risk appetite tumbles; yuan drops") which allowed small and mid cap to shrug off the depressing domestic economic news. UK GDP [contracted a larger than expected](https://www.financedigest.com/contract-caterer-compass-expects-2023-profit-growth-to-top-20.html "Contract caterer Compass expects 2023 profit growth to top 20%") 0.6% in September, albeit partly due to the extra bank holiday, and fell 0.2% over the third quarter. According to the [Bank of England’s](https://www.financedigest.com/the-recent-bank-of-england-meeting-the-biggest-rate-hike-recession-warning-and-the-fallout.html "The recent Bank of England meeting, the biggest rate hike, recession warning and the fallout") forecast, this will mark the start of a recession which will last until at least the end of next year. However, much will depend on the [timing and extent of the spending cuts](https://www.financedigest.com/britains-purplebricks-to-cut-more-than-10-of-jobs-the-times.html "Britain’s Purplebricks to cut more than 10% of jobs – The Times") and tax rises which the Chancellor announces on Thursday as he scrabbles to plug a ‘black hole’ in public finances of over £50bn. We cannot end without a word on the turmoil in the Wild West of [crypto land following the collapse of FTX, the crypto exchange](https://www.financedigest.com/exclusive-binance-moved-346-million-for-seized-crypto-exchange-bitzlato-data-show.html "Exclusive-Binance moved 6 million for seized crypto exchange Bitzlato, data show"), but will limit ourselves to the implications for mainstream assets. The main point here is that the impact has been, and looks likely to remain, minimal. Mainstream [assets rallied sharply last week despite bitcoin sliding](https://www.financedigest.com/orpea-slides-to-annual-loss-of-4-billion-euros-on-asset-depreciation.html "Orpea slides to annual loss of 4 billion euros on asset depreciation") 25% at one point. Importantly, the danger of crypto losses triggering major forced [selling elsewhere now seems much reduced with total assets](https://www.financedigest.com/uks-cineworld-to-not-sell-assets-individually-denies-talks-with-amc.html "UK’s Cineworld to not sell assets individually, denies talks with AMC") invested in crypto well below $1 trillion and down from a high of $3 trillion in 2021. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---