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G&T Team
ResearchResearch Reports Global Equity Markets, 14 November 2022

Global Equity Markets, 14 November 2022

Global macroeconomic summary

US October inflation came in well below estimates, leading to the strongest daily rally for US equities in years. The headline inflation came in at 7.7% y/y (vs 8.0% forecast and down from September’s 8.2%), while core stood at 6.3% (vs 6.5% forecast and down from September’s 6.6%). Importantly, while headline inflation has been falling gradually, it is the first time core inflation declines since June this year. This shift illustrates Fed’s success in taming inflation, and therefore, gave rise to dovish policy expectations in markets. As a result, the expected terminal rate fell to 4.87% from 5.15%.

However, institutional investors seem skeptical of current rally, as the current put call ratio approaches the 2008 peak. If the rally appears to be short-lived, it will not be the first time market overreacts to optimistic news. Moreover, in previous week the US October employment data came in stronger than expected, with 261,000 non-farm payrolls vs consensus of 200,000. Coupled with the fact that one inflation print does not shape Fed’s monetary strategy, a tight labor market provides further argument for implementing contractionary policy.

China’s October inflation print also surprised on the downside, with the headline figure at 2.1% y/y (vs 2.4% forecast and down from September’s peak of 2.8%). However, China’s inflation may rise again as government starts easing Covid-related restrictions. Importantly, this will provide upwards pressure on inflation in the West as well (i.e., in Americas and Europe) as inflation in China will translate into increased prices in whole supply chains.