Markets rise as higher US inflation mitigated by lower core reading

Markets rose on Tuesday.

The MSCI All-Country World Index rose 0.9 percent. The S&P 500 rose 0.6 percent while the STOXX Europe 600 jumped 1.5 percent.

US Treasuries rose. The 10-year note yield fell three basis points to 1.74 percent after a report showed weaker-than-expected US core inflation reading in September.

Charles Comiskey, head of Treasury trading in New York at Bank of Nova Scotia, said: “The lower inflation report pushed the Fed back a little bit.”

However, the inflation report also showed that the headline consumer price index rose 1.5 percent year-on-year, the most since October 2014.

The overall inflation trend appears to be confirming expectations.

The latest monthly survey of fund managers by Bank of America Merrill Lynch showed that inflation expectations are at a 16-month high, while stagflation fears have reached their highest level since April 2013.

And with fund managers also worried about an EU breakup, a bond crash and Republicans winning the White House, it is little wonder then that their cash balances rose to 5.8 percent of their portfolios in October, up from 5.5 percent last month and approaching levels not seen since November 2001.