Stocks Soar on US Inflation, China Quarantine Cuts: Markets Wrap

(Bloomberg) — Global stocks extended gains as China’s easing of quarantine rules added fuel to the rally that began on Wall Street after slower-than-projected US inflation data.

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US and European equity futures rose and a benchmark of Asian equities headed for the biggest jump in more than two years. A gauge of Hong Kong-listed technology stocks surged more than 10% as the shift in quarantine came hot on heels of a call by leaders in Beijing for more precise and targeted virus control measures.

A Bloomberg gauge of the greenback resumed declines Friday, adding to a 2% slide on Thursday that was the biggest move since 2009.

Government bonds rallied in Japan and Australia after Treasuries surged on Thursday in move that sent yields down by 20 to 30 basis points across the US curve. Rates traders downgraded the odds of another three-quarter-point rate increase by the Federal Reserve in December almost to nil.

Cryptocurrency prices retreated Friday as the knock-on effects from FTX’s downfall persisted, even as other risk assets surged after US inflation data.

Headline US inflation came in at 7.7%, the lowest since January, before Russia’s war in Ukraine pushed up commodity prices. More important for the Fed, the core measure that excludes food and energy slowed more than anticipated.

“Touch wood, we can kiss 75-basis-point hikes goodbye as long as incoming data allows, but with inflation likely to remain elevated, I suspect we’ll see rates above 5% next year,” said Matthew Simpson, senior market analyst at StoneX Financial. “And the Fed will want more data before hinting at a lower terminal rate, even if markets behaved like rates were cut overnight.”

Still, Thursday’s intense rally only partially claws back steep losses for risk assets hammered this year by the Fed’s tightening. The S&P 500 is still down 17% and the Nasdaq 100 is off nearly 30%, with both headed for their worst years since 2008. The MSCI World Index is down about 18% this year.

Fed officials appeared to back a downshift in rate hikes after a stretch of four jumbo-sized increases. They also stressed the need for policy to remain tight.

Dallas Fed President Lorie Logan said it may soon be appropriate to slow the pace to better assess economic conditions. San Francisco’s Mary Daly said the moderation was “good news,” but noted “pausing is not the discussion, the discussion is stepping down.”

Key events this week:

Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.7% as of 3:10 p.m. in Tokyo. The S&P 500 rose 5.5%
Nasdaq 100 futures rose 0.9%. The Nasdaq 100 rose 7.5%
The Topix Index rose 2.1%
The Hang Seng Index rose 7.8%
The Shanghai Composite Index rose 2.5%
Euro Stoxx 50 futures rose 0.9%

Currencies

The Bloomberg Dollar Spot Index fell 0.5%
The euro rose 0.2% to $1.0228
The Japanese yen fell 0.4% to 141.54 per dollar
The offshore yuan rose 1% to 7.0800 per dollar

Cryptocurrencies

Bitcoin fell 2.9% to $17,288.22
Ether fell 4% to $1,268.43

Bonds

The yield on 10-year Treasuries fell 28 basis points to 3.81% on Thursday. Trading was closed for a holiday Friday
Japan’s 10-year yield declined one basis point to 0.24%
Australia’s 10-year yield declined six basis points to 3.65%

Commodities

West Texas Intermediate crude rose 2.7% to $88.81 a barrel
Spot gold rose 0.4% to $1,761.80 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Georgina Mckay, Stephen Kirkland and Masaki Kondo.