Wall Street ends sharply higher amid cooling inflation

US stocks jumped, the dollar tanked and Treasury yields tumbled on Thursday as cooler-than-expected inflation data suggested the Federal Reserve's barrage of interest rate hikes are beginning to have their intended effect.

All three major US stock indexes notched their biggest one-day percentage advances in about 2-1/2 years in a broad, robust rally.

The risk-on fervor also sent the 10-year Treasury yield to its lowest level in five weeks and the safe-haven greenback plummeting.

"I'm surprised at the gain relative to the slight drop in inflation," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. "There must have been a lot of money sitting on the sidelines."

The consumer price index (CPI) showed the prices paid by urban US consumers for a basket of items cooled down in October, a welcome indication that the buckets of cold water the Federal Reserve has been dumping on the economy with its hawkish monetary policy are reining in decades-high inflation at last.

Also Read | US annual consumer inflation eases to still-high 7.7% in October

"It shows you how focused asset owners were on inflation compared to everything else going on in the world," Tuz said. "Investors are getting into risk assets again across the board."

"It's a powerful sign that maybe what the Fed and central banks around the world are doing is going to work."

Following four consecutive 75 basis-point interest rate hikes from the Fed, financial markets have now priced in an 85 per cent likelihood of a smaller, 50 basis-point interest rate hike at the conclusion of next month's FOMC policy meeting, and a 54 per cent chance of an even smaller, 25 basis-point increase at the meeting to follow, according to CME's Fedwatch tool.

The Dow Jones Industrial Average rose 1,201.43 points, or 3.7 per cent, to 33,715.37, the S&P 500 gained 207.8 points, or 5.54 per cent, to 3,956.37 and the Nasdaq Composite added 760.97 points, or 7.35 per cent, to 11,114.15.

European shares shot up to their highest close in 11 weeks.

The pan-European STOXX 600 index rose 2.75 per cent and MSCI's gauge of stocks across the globe gained 4.57 per cent.

Emerging market stocks lost 0.49 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.21 per cent higher, while Japan's Nikkei lost 0.98 per cent.

Signs that the decades-high inflation growth is beginning to ebb sent US Treasury yields to a five-week low, supporting expectations that the Fed could ease its foot from the rate-hike accelerator.

Benchmark 10-year notes last rose 85/32 in price to yield 3.82 per cent, from 4.142 per cent late on Wednesday.

The 30-year bond last rose 125/32 in price to yield 4.0519 per cent, from 4.319 per cent late on Wednesday.

The dollar tumbled against a basket of world currencies as the prospect of post-peak inflation lured investors away from the safety of the greenback.

The dollar index fell 2.41 per cent, with the euro up 2.07 per cent to $1.0218.

The dollar's slide corresponded with spikes in the yen and other exchange rates.

The Japanese yen strengthened 4.26 per cent versus the greenback at 140.51 per dollar, while sterling was last trading at $1.1729, up 3.28 per cent on the day.

Robust investor risk appetite helped cryptocurrencies stage a partial comeback, with bitcoin last up about 13 per cent, reversing its freefall after the collapse of crypto exchange FTX.

Crude prices bounced back following the CPI surprise, on hopes that sturdy demand will help offset renewed Covid-19 restrictions in China.

US crude rose 0.75 per cent to settle at $86.47 per barrel, while Brent settled at $93.67 per barrel, up 1.1 per cent on the day.

Gold prices jumped as the dollar dropped. Spot gold added 3.0 per cent to $1,756.78 an ounce.