Stock Market Live: Stocks Extend Rally As Slowing Inflation Tames Fed Rate Bets

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U.S. equity futures moved higher in active trading Thursday following a key December inflation reading that showed a sixth consecutive monthly decline in consumer prices that could add more pressure on the Fed to alter its monetary tightening stance.

Headline inflation declined in December, the Commerce Department said Thursday, while the annual reading slowed to an expected rate of 6.5%, the lowest since October of 2021. So-called core inflation, which strips out food and energy costs, also eased to 5.7% on the year and 0.3% on the month, with both figures largely matching Street forecasts.

Stocks were primed for a softer reading, however, after the S&P 500 extended its 2023 gain last night to around 2.1% and lifting the benchmark closer to its 200-day moving average, an important technical trading level that it hasn’t met since the market sold-off in mid December.

Last night’s gains were powered in part by fading inflation forecasts and easing rate bets, linked to a better-than-expected auction of $32 billion in 10-year Treasury notes, which saw the strongest demand since August a big increase in foreign buying interest, that helped push bond yields lower across the curve, boosting tech stocks and adding to the session’s optimism.

Benchmark 10-year note yields slipped 5 basis points to 3.467% following the CPI reading while 2-year notes fell 9 basis points 4.115%. The U.S. dollar index, which tracks the greenback against a basket of its global currency peers, was marked 0.8% lower at 102.370, the lowest since early July.

The CME Group’s FedWatch is now pricing in an 87.2% chance of a 25 basis point Fed rate hike on February 1, up from 77% prior to the CPI release and just 35.1% in early December.

Stocks were also holding firm heading into the data release, with futures contracts tied to the the S&P 500 are priced for a 29 point opening bell gain while those linked to the Dow Jones Industrial Average are set for a 190 point advance. The tech-focused Nasdaq, which is on its best four-day run since November, is looking at a 90 point bump.

In terms of notable pre-market movers, Walt Disney DIS shares jumped 1.7% after the media and entertainment group named former Nike NKE CEO Mark Parker to head its board of directors while revealing a push for changes from activist Nelson Peltz.

American Airlines  (AAL) – Get Free Report shares powered higher after the biggest U.S. carries boosted its fourth quarter profit forecast amid the ongoing surge in domestic travel demand and a solid holiday season that saw it capitalize on the challenges faced by rival Southwest Airlines  (LUV) – Get Free Report.

Taiwan Semiconductor Manufacturing Co.  (TSM) – Get Free Report rose 3.1% after the world’s biggest contract chipmaker and a lead supplier for Apple AAPL iPhones posted record December quarter profits, but lowered its capital spending plans amid a pullback in global demand.

KB Home  (KBH) – Get Free Report fell 2.6% after the single-family homebuilder posted weaker-than-expected fourth quarter earnings and a muted 2023 forecast amid what it called “significant uncertainty and limited forward visibility” in the U.S. housing market.

In overseas markets, the the region-wide MSCI ex-Japan index rose 0.19% to a seven-month high into the close of trading, boosted by an in-line reading for China inflation over the month of December and ongoing bets that its re-opening momentum will boost broader economic growth.

Europe’s Stoxx 600 was marked 0.72% higher in mid-day Frankfurt dealing, while London’s FTSE 100 was up 0.81%.