Markets Extend Rally On Hopes Fed Near End Of Rate Hike Cycle

Asian traders on Friday welcomed more data showing falling US inflation, giving the Federal Reserve room to bring the curtain down on more than a year of interest rate hikes.

Global markets have been bubbling this week on hopes for an end to monetary tightening aimed at taming inflation, which was fuelled by post-Covid reopening, supply chain snarls and Russia's invasion of Ukraine.

That has come just as China pledges to introduce measures to kickstart its stuttering economy and bring an end to a painful crackdown on the huge tech sector.

Wall Street cheered news Thursday that wholesale prices rose less than expected in June. That followed Wednesday's report showing the consumer price index below forecasts.

While the CPI remains above the Fed's target, analysts said there is growing confidence that officials were winning their battle and the economy could avoid a feared recession.

US traders pushed the S&P 500 up almost one percent to its highest finish since April last year, while the Nasdaq surged more than one percent as tech firms benefit from a lower rate environment.

"The back-to-back softer inflation prints have further convinced traders that the Fed is topping out this month as thoughts of a September hike get blotted out," said Stephen Innes of SPI Asset Management.

"As a result, after numerous fits and starts, the door appears wide open for global investors to strap on those peak Fed trades."

The upbeat mood on Wall Street filtered through to Asia, where Hong Kong rose for a fifth successive day thanks to a bounce in Chinese tech giants.

Shanghai, Sydney, Seoul, Singapore, Taipei, Mumbai, Bangkok, Manila and Jakarta also gained.

However, Tokyo struggled owing to a pick-up in the yen against the dollar, which has come under pressure against its peers owing to lower expectations about US rates.

London, Paris and Frankfurt were flat.

The Japanese currency weakened slightly after earlier falling below 138 per dollar, its strongest level since May, while the euro was at a 17-month high above $1.12. Sterling was also hovering above $1.31.

However, Marvin Loh, a strategist at State Street, warned the Fed still had a battle to get inflation down to its target.

"Getting towards two percent is still going to take a lot of work," he told Bloomberg News.

"Higher for longer is still going to be a message that comes out of the Fed and ultimately might be appropriate."

And Fed Bank of San Francisco boss Mary Daly said that while the latest CPI report was "very positive", she remained in a "wait-and-see mode on that, because I remain resolute to bring inflation down to two percent".

Analysts warned that the weaker greenback could push up the cost of oil -- which is priced in dollars -- and in turn add fresh upward pressure to inflation, complicating the Fed's playbook.

"The ongoing disinflationary narrative may be premature and mispriced at this juncture," said OANDA's Kelvin Wong.

Focus now turns to corporate earnings season, with traders keen to hear firms' outlooks in light of higher rates and signs economies were slowing.

Tokyo - Nikkei 225: DOWN 0.1 percent at 32,391.26 (close)

Hong Kong - Hang Seng Index: UP 0.3 percent at 19,414.97

Shanghai - Composite: FLAT at 3,237.70 (close)

London - FTSE 100: FLAT at 7,439.55

Euro/dollar: DOWN at $1.1214 from $1.1230 on Thursday

Dollar/yen: UP at 138.44 yen from 138.03 yen

Pound/dollar: DOWN at $1.3108 from $1.3134

Euro/pound: UP at 85.53 pence from 85.47 pence

West Texas Intermediate: DOWN 0.3 percent at $76.64 per barrel

Brent North Sea crude: DOWN 0.4 percent at $81.04 per barrel

New York - Dow: UP 0.1 percent at 34,395.14 (close)