Stocks Jump, Dollar Sinks As Fed Seen Ending Rate Hikes

Hong Kong's Hang Seng Index led gains across Asia thanks to a rally in tech giants AFP

World stock markets rallied Thursday and the euro hit a 16-month dollar peak, after easing US inflation stoked hopes the Federal Reserve's long-running campaign of interest rate hikes could be near an end.

Asian and European equities bounded higher, after gains on Wall Street, with London also shrugging off news of shrinking UK economic growth.

The European single currency soared to $1.1174, a level last seen in March 2022, while oil prices firmed.

Sterling hovered at a 15-month peak above $1.30 as data showed the UK economy shrank just 0.1 percent in May.

"With inflation slowing down faster than expected, the Fed's tightening is producing the desired effect, and investors have started to price-in the end of the current hiking cycle," said ActivTrades analyst Ricardo Evangelista.

"The markets can now see a path for a soft landing of the US economy, with inflation being controlled without the country... entering a serious recession."

Traders already had a spring in their step this week on signs that the US central bank's monetary tightening measures were kicking in.

The mood brightened Wednesday when the US Labor Department said the consumer price index came in at 3.0 percent in June, the lowest since March 2021 and sharply down from 4.0 percent in May. The Fed's target is two percent.

On top of that, the "core" rate, which excludes the volatile food and energy components and is seen as a better sign of underlying inflation, sank to its lowest since 2021.

The readings follow last week's better-than-hoped personal consumption expenditures data -- seen as the Fed's preferred gauge -- and stoked bets that it will hike just one more time before calling it quits.

Analysts also pointed out that, while showing signs of softness, the labour market was still robust and the economy remained in rude health.

Also Wednesday, the Fed's "beige book" survey of the economy showed activity had improved since late May thanks to strong tourism and travel.

Wall Street cheered the latest figures, with the Nasdaq up more than one percent as tech firms are more susceptible to borrowing costs.

Asia happily picked up the baton, with Hong Kong up more than two percent while Tokyo, Shanghai, Sydney and Singapore were all up more than one percent.

Hong Kong's tech giants were among the Hang Seng Index's best performers on hopes that China's crackdown on the sector is near an end.

That optimism was boosted by state media reports that Premier Li Qiang met representatives from industry leaders including Alibaba and TikTok's Chinese counterpart Douyin on Wednesday.

Traders are also keeping watch for any statements out of Beijing after officials announced a series of pledges to support the struggling property sector and indicated other growth-boosting measures would be outlined.

Expectations were boosted by data showing Chinese exports plunged more than 12 percent last month while imports were also sharply down.

London - FTSE 100: UP 0.3 percent at 7,440.59 points

Frankfurt - DAX: UP 0.5 percent at 16,107.79

Paris - CAC 40: UP 0.7 percent at 7,381.51

EURO STOXX 50: UP 0.7 percent at 4,389.66

Tokyo - Nikkei 225: UP 1.5 percent at 32,419.33 (close)

Hong Kong - Hang Seng Index: UP 2.6 percent at 19,350.62 (close)

Shanghai - Composite: UP 1.3 percent at 3,236.48 (close)

New York - Dow: UP 0.3 percent at 34,347.43 (close)

Euro/dollar: UP at $1.1172 from $1.1129 on Wednesday

Dollar/yen: DOWN at 138.44 yen from 138.50 yen

Pound/dollar: UP at $1.3067 from $1.2988