Markets rally as data shows slowing inflation

April 14, 2023 (MLN): Asian equities rose and the dollar continued to dip on Friday, following fresh data showing a continued slowdown in inflation. This has led investors to hope that the Federal Reserve is nearing the end of its long-running campaign of interest rate hikes.

The March producer price index surprised economists with an on-month drop, the biggest since April 2020, as reported by APP. 

This came after the consumer price index dropped more than expected, suggesting the central bank's tightening campaign was finally paying off. Additionally, a higher-than-forecast reading on jobless claims added to the positive mood, which helped send Wall Street's three main indexes rallying, including a two percent advance for the Nasdaq.

Investors are now betting the Fed will hike rates 25 basis points at its May gathering, but possibly hold after that, with some still clinging to hopes it will even cut by the end of the year.

This week's data has reassured investors that inflation is coming down and that the economy could be heading for a soft landing, even though minutes from the Fed's March policy meeting revealed some officials see a mild recession by the year's end.

"Inflation is not surprising to the upside," said Que Nguyen at Research Affiliates. "At the same time, the job market seems stable. And so what we're getting today is sort of an optimistic outlook that we're going to have an almost like a Goldilocks situation where inflation's going to slow, but the economy is not crashing."

With Thursday's data lowering expectations for where rates will top out, the dollar has come under pressure, hitting a one-year low against the euro. It continued to struggle on Friday, falling further versus the single currency, while the pound was at its best level since June.

The focus now turns to the corporate earnings season, which kicks off in earnest on Friday with results from banking titans including JPMorgan Chase, Wells Fargo, and Citigroup. Traders are keenly awaiting their outlook statements in light of the upheaval in the banking sector last month that saw three US lenders go under and Credit Suisse bought by rival UBS.

Oil prices also rose in Asian business, extending a rally sparked by major producers' decision this month to slash output by more than a million barrels a day.

The OPEC+ group said on Thursday that the move had put world markets on course to be in deficit, which will widen as the year goes on, with China's reopening adding extra pressure.

Copyright Mettis Link News