ASX set to jump as cooling inflation boosts Wall Street; $A surges

The 10-year Treasury yield fell to 3.84 per cent from 3.98 per cent late Tuesday. It helps set rates for mortgages and other important loans.

The two-year Treasury yield dropped to 4.74 per cent from 4.89 per cent. It tends to follow expectations for the Fed more closely.

To be sure, even if the Fed does halt its hikes, analysts warn the economy and financial markets still haven’t seen the full effect of all the past increases. Rate hikes take a notoriously long time to filter through the system, and unanticipated pain can occur.

That’s what happened in March, when high rates helped cause the failure of three US banks and rattled faith in the system.

“Despite today’s deceleration, we continue to expect inflation to remain above the Federal Reserve’s 2 per cent target, making it unlikely that we see policy easing soon,” said Gargi Chaudhuri, head of iShares Investment Strategy, Americas.

That means she expects rates to stay high for a while. That’s also why many investors say the waiting game is still on to see if one of the longest-predicted recessions in memory will actually happen.

In the meantime, though, stocks that tend to benefit the most from lower interest rates are leading the way. That includes big technology and other high-growth stocks.

Microsoft and Nvidia were the two strongest forces pushing up the S&P 500, and each rose at least 1.6 per cent.

Banks were broadly rallying on hopes for a halt to rate hikes. Earlier rate increases strained their business by knocking down the value of loans and bonds bought when rates were ultra low. Following the March collapses of three banks, their stocks tumbled as Wall Street hunted for the industry’s next potential weak link.

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Comerica rose 4.4 per cent, and KeyCorp. rose 4.2 per cent for two of Wednesday’s bigger gains in the S&P 500.

Domino’s Pizza jumped 11.4 per cent for the biggest gain in the index after it announced a partnership where customers can order its pies through Uber Eats.

In Europe, the Bank of England warned that households are facing increasing problems from sharply rising interest rates but expressed hope that the country’s biggest banks were resilient enough to offer more help than they could before the global financial crisis 15 years ago.

Stocks in London rose 1.8 per cent and were also higher across much of the rest of Europe.