Global stock markets rise amid optimism over US inflation slowdown

'Double win' for investors as consumer and producer price rises decelerate faster than was forecast

The Shanghai Composite declined on Friday, bucking the wider trend of gains in Asian markets. Reuters

Global stock markets rose on Friday, still riding the positive US inflation data from earlier this week as investors mull the size of the next interest rate move by the US Federal Reserve.

Market sentiment has been buoyed by US Labour Department data this week showing a slowdown in consumer and producer prices in July following a series of interest rate hikes by the Fed.

On Wall Street, the Dow rose 1.27 per cent, while the S&P 500 gained 1.73 per cent. The tech-heavy Nasdaq Composite added more than 2 per cent.

The S&P 500 is up 17.7 per cent from a mid-June low, with the latest gains coming from data this week showing a slower-than-expected rise in the consumer price index and a surprise drop in producer prices last month.

For the week, the S&P 500 added 3.25 per cent, the Dow rose 2.92 per cent and the Nasdaq gained 3.8 per cent. The S&P 500 and Nasdaq notched their fourth straight week of gains.

“This week has been all about the inflation data and, frankly, it could be the dominant force in the markets now right up until the Jackson Hole symposium,” said OANDA analyst Craig Erlam, referring to a meeting of central bankers from around the world at the end of August.

“The fact that inflation not only decelerated in the US, but at a faster pace than the consensus forecasts was a double win and risk assets are feeling the benefit,” Mr Erlam said.

In Europe, London's FTSE 100 index closed 0.5 per cent higher, Frankfurt's DAX gained 0.7 per cent and Paris's CAC 40 index added 0.1 per cent.

Earlier in Asia, Tokyo's Nikkei 225 settled up 2.6 per cent and Hong Kong's Hang Seng Index rose 0.5 per cent, but the Shanghai Composite declined 0.2 per cent.

But whether the improved data hearkens a pivot in Fed policy anytime soon remains an open question.

The markets have been concerned that, after two consecutive Fed increases in borrowing costs of three-quarters of a percentage point, further hikes of a similar magnitude could choke off economic recovery.

Fed officials have lined up to try to defuse speculation that the cycle of monetary policy tightening could be coming to an end anytime soon.

Jack Ablin, chief investment officer of Cresset Asset Management, attributed the gains to a “sentiment shift” that he cautioned may be excessive given the limited evidence to date.

“It's just momentum and positivity that's driving the market higher,” Mr Ablin said. “It seems like some of the bullish investors may be getting ahead of themselves.”

UBS Financial Services analyst Terri Jacobsen said she expected “headwinds for the markets until we get some resolution on how far the Fed is going to go and how long they're going to raise interest rates”.

Gold prices advanced, helped by a drop in US Treasury yields, and setting bullion on path for a fourth straight week of gains.

Spot gold added 0.7 per cent to $1,801.76 an ounce. US gold futures gained 0.56 per cent to $1,799.70 an ounce.