HONG KONG (AFP) – Markets extended a global rally yesterday after below-forecast United States (US) inflation provided a much-needed shot of relief to investors and revived hopes for interest rate cuts this year.
Strong earnings from Wall Street banking titans and a ceasefire deal between Israel and Hamas added to the optimistic mood on trading floors.
Still, there remains a certain amount of caution ahead of Donald Trump returning to the White House next week, having promised to ramp up tariffs on imports, and slash taxes and regulations that many fear could reignite inflation.
Data on Wednesday showing core consumer prices rose less than expected in December helped spur a surge in New York-listed stocks led by tech giants including Nvidia, Amazon and Google-parent Alphabet.
The S&P 500 and the Dow piled on more than one percent and the Nasdaq more than two percent, putting them back in the green for 2025, with healthy earnings reports from Goldman Sachs, JPMorgan Chase, BlackRock and Bank of New York Mellon also lifting sentiment.
The inflation figures tempered worries that the Federal Reserve might not cut rates this year – or possibly even hike them – following a blockbuster jobs report today.
Swap traders are now eyeing a reduction in July, having been looking at September or October at best.
New York president John Williams also provided some soothing comments, saying “the process of disinflation remains in train”.
Chief US economist at Morningstar Preston Caldwell said: “Data on economic growth has continued to roll in stronger than expected, contributing to the upward revision in our 2024
expectation.
“However, strong growth has helped generate a large rise in bond yields. If it persists, higher borrowing costs will seriously degrade (gross domestic product) growth in 2025 and 2026.
“Still, we expect the Fed to respond adroitly to decelerating growth in 2025 and 2026 with hefty rate cuts, ultimately triggering a growth rebound in 2027 and 2028.”
Asian markets enjoyed a broadly healthy day.
Hong Kong, Shanghai, Sydney, Singapore, Seoul, Mumbai, Wellington, Bangkok and Jakarta all advanced, though Manila edged down.
Tokyo also edged up but was limited by a pick-up in the yen against the dollar after the inflation data and as investors assess the chances of a rate hike by the Bank of Japan at its meeting next week.
London rose even as data showed the United Kingdom (UK) economy expanded at a slower pace than expected in November. Paris and Frankurt also rose.
Oil prices also extended a surge this week fuelled by fresh US-UK sanctions on Russia’s energy sector and amid fears Trump will ramp up measures against key producer Iran when he takes the Oval Office.
Meanwhile, data on Wednesday showed US inventories fell for an eighth week to their lowest since April 2022, with the International Energy Agency saying a colder winter has pushed global demand higher.
