Stock markets rose strongly Tuesday as a key measure of US inflation slowed more than expected, raising hopes that the Federal Reserve will pause on raising rates.
The US consumer price index (CPI) increased by 3.2 percent in the 12 months to October, down from 3.7 percent a month earlier, the Labor Department said in a statement.
Analysts had been expecting an increase of about 3.3 percent.
"The market has essentially removed any probability for any more rates hikes," Steve Sosnick from Interactive Brokers told AFP.
"It’s hard to find anything that is not joining the party," he added.
The Dow Jones Industrial Average closed up 1.4 percent, while the broad-based S&P 500 Index jumped 1.9 and the tech-rich Nasdaq Composite Index surged 2.4 percent.
The moderating outlook for inflation sent both bond yields and the dollar lower.
European stocks also finished higher following the US inflation news.
Paris and Frankfurt closed around one-and-a-half percent in the green with London adding a more modest 0.2 percent.
"Today potentially lays the groundwork for the Fed to adopt a much less hawkish position -- especially compared with September -- and markets are now seemingly convinced the tightening cycle is over, said Craig Erlam, senior market analyst at Oanda.
- The 'softest' of landings -
While inflation has slowed sharply since peaking least year, as measured by a range of yardsticks, it remains well above the Fed's two-percent target.
The Federal Reserve recently held its key lending rate at a 22-year high for a second consecutive meeting, leading some analysts and traders to predict it was done tightening monetary policy.
But since then, a number of policymakers, including Fed Chair Jerome Powell, have indicated that they are prepared to hike rates again, if necessary, to bring price increases firmly down to target.
Some officials, including Chicago Fed President Austan Goolsbee, have expressed a different view, indicating the United States may be on track to bring down inflation while avoiding a damaging recession -- known as a "soft landing."
On Tuesday, Goolsbee told a conference in Detroit that the US could be on track to "surpass" its 1982 record, when policymakers managed to slow CPI inflation by more than four percent in a single year.
But unlike in 1982, when the Fed's actions caused a surge in joblessness, policymakers in 2023 may be able to do so while keeping the unemployment rate below four percent, he said.
"That's what I call the golden path," he added. "That's more than a soft landing. That's the softest of all the soft landings."
"The softer CPI inflation data mean the market will have a harder time absorbing hawkish rhetoric from the Fed," said Jane Foley, head of foreign exchange strategy at Rabobank in London.
"Without further upside shocks to inflation, policymakers will have a hard time steering the market away from talk of rate cuts in 2024," she added.
London's FTSE-100 index lagged its counterparts after official data showed UK wages rose faster than inflation, reigniting concerns that British interest rates could remain high for a long time, or even increase further.
Official data, however, is expected to reveal on Wednesday a sharp fall in British annual inflation.
Meanwhile, there are hopes that this week's upcoming meeting between US President Joe Biden and Chinese leader Xi Jinping could ease tensions between the economic superpowers, further comforting the markets.
- Key figures around 2045 GMT -
New York - Dow: UP 1.4 percent at 34,827.70 points (close)
New York - S&P 500: UP 1.9 percent at 4,495.70 (close)
New York - Nasdaq Composite: UP 2.4 percent at 14,094.38 (close)
London - FTSE 100: UP 0.2 percent at 7,440.47 (close)
Paris - CAC 40: UP 1.4 percent at 7,185.68 (close)
Frankfurt - DAX: UP 1.8 percent at 15,614.43 (close)
EURO STOXX 50: UP 1.4 percent at 4,291.72 (close)
Tokyo - Nikkei 225: UP 0.3 percent at 32,695.93 (close)
Hong Kong - Hang Seng Index: DOWN 0.2 percent at 17,396.86 (close)
Shanghai - Composite: UP 0.3 percent at 3,056.07 (close)
Euro/dollar: UP at $1.0880 from $1.0701 on Monday
Dollar/yen: DOWN at 150.37 from 151.71 yen
Pound/dollar: UP at $1.2496 from $1.2280
Euro/pound: DOWN at 87.05 pence from 87.12 pence
Brent North Sea crude: DOWN 0.1 percent at $82.47 per barrel
West Texas Intermediate: FLAT at $78.26 per barrel