US inflation data to buoy local shares

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.

Wall Street closed 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.

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 rose 216.96 points, or 0.64 per cent, to 34,189.97, the S&P 500 gained 13.55 points, or 0.34 per cent, to 3,983.16 and the Nasdaq Composite added 69.43 points, or 0.64 per cent, to 11,001.11.

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.