Stock markets jump as US inflation cools

Stock markets bounced on Wednesday as data showed US inflation cooled more than expected in June, raising hopes that the Federal Reserve will soon end its cycle of interest rate hikes.

The dollar fell against other major currencies while oil prices jumped, with the international benchmark, Brent North Sea crude, breaching the $80-per-barrel mark.

The Fed and other central banks have been raising borrowing costs in efforts to bring down consumer prices, which rose as countries emerged from the Covid pandemic and soared further following Russia's invasion of Ukraine last year.

Official data on Thursday showed the US consumer price index (CPI) rose 3.0 percent from a year ago last month, down from 4.0 percent in May and slightly lower than analysts expected.

While Fed officials have signalled that further rate increases are likely needed to bring inflation back to their two percent target, the June CPI report heightens market doubts about the number of additional increases needed down the line.

The Fed paused its aggressive monetary tightening at its last gathering in June but chairman Jerome Powell has warned that two more hikes were probably needed by the end of the year.

The Fed's next policy meeting is on July 25-26.

"The Fed is extremely likely to raise interest rates by another 25 basis points but there's a good chance that it could now be the last," Craig Erlam, analyst at trading platform OANDA, told AFP.

"We're seeing progress across the board at this point, albeit more slowly than many will have hoped, but there's no longer a necessity for the Fed to be so aggressive," Erlam said.

CMC Markets analyst Michael Hewson said that the latest data make clear that "further rate hikes beyond July will be a big ask, and probably won't happen, hence today's US dollar weakness."

Nevertheless, Fed officials would likely continue to adopt a hawkish tone, he said, in order to keep market expectations in line.

Wall Street stocks shot higher at the start of trading while European markets extended earlier gains.

London equities had already climbed after the Bank of England announced that all major UK retail lenders passed stress tests to assess their resilience to economic shocks.

Cooling US inflation "is certainly good news for the economy, but it is important to keep in mind that this is still a transitory situation," said Naeem Aslam, chief investment officer at Zaye Capital Markets.

"But overall, traders are cheering this event," Aslam said.

The dollar was down against other currencies, falling to its lowest level against the Swiss franc since 2015 at 0.8660 francs per greenback.

The pound rose above $1.30 for the first time since April 2022 while the euro hit $1.1123, its highest level in 16 months.

Higher interest rates make a currency attractive to investors looking for higher returns.

Asian equities have meanwhile enjoyed a broadly positive week so far after China signalled a long-running crackdown on the tech sector was nearing an end, while officials also pledged help for ailing real estate developers.

That was followed by reports that further growth-boosting measures and data showing new loans in China had picked up in June thanks to a central bank interest rate cut.

Optimism is now building for more announcements aimed at kickstarting the world's number two economy as its post-Covid recovery sputters.

New York - Dow: UP 0.7 percent at 34,497.13 points

London - FTSE 100: UP 1.8 percent at 7,416.11 (close)

Frankfurt - DAX: UP 1.5 percent at 16,023.00 (close)

Paris - CAC 40: UP 1.6 percent at 7,333.01 (close)

EURO STOXX 50: UP 1.7 percent at 4,360.46 (close)

Hong Kong - Hang Seng Index: UP 1.1 percent at 18,860.95 (close)

Shanghai - Composite: DOWN 0.8 percent at 3,196.13 (close)

Tokyo - Nikkei 225: DOWN 0.8 percent at 31,943.93 (close)

Euro/dollar: UP at $1.1124 from $1.1009 on Tuesday

Dollar/yen: DOWN at 138.35 yen from 140.36 yen

Pound/dollar: UP at $1.2993 from $1.2933

Brent North Sea crude: UP 0.8 percent at $80.00 per barrel

West Texas Intermediate: UP 1.1 percent at $75.65 per barrel