Dow opens up more than 350 points after PPI data comes in ahead of expectations

9.38am: PPI data may alter Fed’s trend of raising interest rates

The Dow opened Tuesday up 366 points, more than 1%, at 33,903, the Nasdaq Composite gained 289 points, 2.6%, to 11,486 and the S&P 500 improved 67 points, 1.7%, to 4,026.

Investors reacted positively to the latest producer price index report, a measure of wholesale inflation, which rose 0.2% for the month. That came in below the consensus estimate of 0.4% from Dow Jones. 

That figure, plus last week’s consumer price index data, is indicative that inflation may be slowing. That could change the Federal Reserve’s calculus on interest rates, said Jeremy Siegel, professor emeritus of finance at the University of Pennsylvania’s Wharton School of Business.

“I think this moves up the [Fed] pivot,” Siegel said on CNBC’s Squawk Box. “All we need is for them to recognize what prices on the ground are actually doing, and they are not going up.”

6.30am: More gains? 

US stocks are expected to open higher on Tuesday, regaining some ground after yesterday’s falls, ahead of key producer price data due out later today.

Futures for the Dow Jones Industrial Average were 0.3% higher in pre-market trading, while those for the S&P 500 were up 0.7%, and contracts for the Nasdaq-100 rose 1.2%. 

The producer price index for October, which measures inflation at the factory gate, is due for release at 8:30am ET. Coming on the heels of last week’s softening in the consumer price index for October which led to a rally in share prices, investors are hoping for a similar easing in upstream inflationary forces.

After rising by 0.4% in September, the headline rate is again expected to rise by 0.4% in October. A smaller-than-expected increase is likely to boost share prices and will strengthen hopes that US rate setters will scale back on interest rate hikes as inflation begins to respond to their monetary policy moves. The US Federal Reserve has delivered four straight 75 basis point increases so far this year. 

“Equities saw some profit taking in last week’s post-US inflation rally, as some Federal Reserve officials put ‘the church in the middle of the village’ as would say the Swiss, reminding investors that the 7.7% inflation is still high and that the Fed would continue fighting to bring it lower,” noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Meanwhile, there was also good news from yesterday’s meeting between US President Joe Biden and China’s Xi Jinping, she added.

“Both leaders criticized Russia for loose nuclear talk, which certainly helped melt the ice between the two nations. Joe Biden said a new cold war isn’t necessary. Xi said the world is big enough for everyone to prosper. Xi still warned the US that it doesn’t want to see its nose in its Taiwan matters,“ Ozkardeskaya said. 

“But overall, the three-hour discussion happened as if Joe Biden hadn’t forbidden US chipmakers to sell their stuff to China to keep China in retreat for technological advance,” she noted.

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