US inflation data to buoy local shares

By Stan Choe and Damian J Troise

Australian shares are expected to open higher on Friday after the release of inflation data in the US quelled concerns of further hefty rate hikes in the near future.

ASX futures were up 35 points, or 0.48 per cent, to 7266 just before 7am this morning.

Australian shares are expected to rise today.
Australian shares are expected to rise today. Credit:Louie Douvis

Wall Street drifted higher Thursday after a report showed inflation in the US slowed again last month, bolstering hopes the Federal Reserve may take it easier on the economy through smaller hikes to interest rates.

The S&P 500 was 0.5 per cent higher after flipping between small gains and losses through the morning. While the report on US inflation was clearly encouraging, stocks had already rallied earlier this week in anticipation of exactly such data. The numbers were in line with forecasts on many points, and analysts warned investors not to get carried away by them.

The Dow Jones Industrial Average was up 252 points, or 0.7 per cent, at 34,219, as of mid-afternoon trade in New York, and the Nasdaq composite was 0.6 per cent higher. They also earlier drifted between gains and losses.

Small company stocks were outpacing the broader market. The Russell 2000 rose 1.5 per cent.

America’s painfully high inflation has been at the centre of Wall Street’s wild movements for more than a year. Recently, stocks have been rising and bond yields have been falling on hopes inflation’s cooldown from a Northern Hemisphere summertime peak may get the Federal Reserve to ease off its barrage of rate hikes. Such increases can stifle inflation, but they do so by slowing the economy and risk causing a recession. They also hurt investment prices.

In the bond market, Thursday’s inflation report sent yields falling further as traders grow more convinced the Fed will downshift the size of its next rate increase. They’re now largely forecasting a hike of just 0.25 percentage points next month, down from December’s half-point hike and from four prior increases of 0.75 percentage points.


Many traders are betting on the Fed to follow that with perhaps another quarter-point hike, but to then potentially take a pause, according to data from CME Group.

Analysts cautioned that while Thursday’s inflation report did show inflation at its least debilitating level in more than a year, it still leaves room for continued pressure on the economy from high rates. They warned more big swings may still be to come for markets.

“While we can safely say that we are past peak inflation, it is too early to call victory on the battle against higher inflation,” said Gargi Chaudhuri, head of iShares Investment Strategy, Americas.

Analysts also warned investors not to think of slower rate hikes or a coming halt to increases as the same thing as cuts to interest rates, something some investors hope may happen later this year. Such cuts can act like rocket fuel for markets.

Even though inflation slowed to 6.5 per cent last month from its peak of more than 9 per cent in June, it’s still far too high for the Fed’s and US households’ liking. The central bank has been adamant that it plans to continue raising rates this year and that it sees no rate cuts happening until 2024 at the earliest.

Earnings reporting season is set to kick off in earnest Friday, with JPMorgan Chase and UnitedHealth Group among the day’s headliners. One big worry on Wall Street is that high inflation and a slowing global economy are eating into profits for big companies.

Analysts say this could be the first time earnings per share for S&P 500 companies fall from year-ago level since 2020.

Associated Press, with a staff reporter

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