ASX set to jump at open at traders await US inflation data

Australian shares are expected to jump at the open amid increasing optimism about the global economy ahead of a key data release in the US.

ASX futures were pointing to a bounce of 104.5 point, or 1.48 per cent, to 7,181.5 at 7.38am this morning.

US stocks closed higher this morning as investors made their final moves ahead of a highly anticipated report on inflation, one that could show whether Wall Street’s rising optimism recently has been warranted or overdone.

The Dow Jones Industrial Average rose 268.91 points, or 0.8 per cent, to 33,973.01, the S&P 500 gained 50.36 points, or 1.28 per cent, to 3,969.61 and the Nasdaq Composite added 189.04 points, or 1.76 per cent, to 10,931.67.

Stocks have started 2023 with gains on hopes that cooling inflation and a slowing economy may get the Federal Reserve to ease off its sharp hikes to interest rates. Such increases can help stamp out high inflation, but they also slow the economy by design and raise the risk of a recession while hurting prices for stocks and other investments.

Economists expect Thursday’s report to show inflation is continuing to cool from its summertime peak, down to 6.5 per cent last month from 7.1 per cent in November and from more than 9 per cent in June. The hope on Wall Street is that such a trend toward normal could convince the Fed to soon halt its blistering set of rate increases, many of which were at shock-and-awe levels that were triple the usual amount.

Some investors are even betting the Fed will cut interest rates in the second half of this year, to help prop up an economy that’s beginning to show pockets of weakness because of last year’s rate hikes. Cuts to rates typically act like steroids for markets, propping up prices for stocks and other investments.

“One real thing I think underpinning the market is simply the fact that the market doesn’t believe the Fed when they say they’re going to keep hiking this year,” said Brad McMillan, chief investment officer for Commonwealth Financial Network.

Of course, that also means investors could be setting themselves up for disappointment. If Thursday’s data and other reports don’t show inflation is improving as much as expected, it could mean the Fed would have to get tougher on interest rates.