Global Markets Report - 13 January

Australia

Australian shares are set to open higher today after consumer price data released on Thursday confirmed that inflation is beginning to slow down.

ASX futures added 25 points or 0.34% as of 8:00am on Friday, suggesting a positive open.

US stocks climbed Thursday after the latest inflation data showed cooling price pressures for the sixth consecutive month, likely keeping the Federal Reserve on track to slow its pace of interest rate increases.

The S&P 500 added 0.34%, while the Dow Jones Industrial Average and the technology-heavy Nasdaq Composite both rose 0.64%. The indices bobbed between small gains and losses for much of the morning before gaining steam midday.

Consumer price inflation slowed to 6.5% in December, down from 7.1% in November, the Labor Department said. Despite landing largely in line with economists' expectations, one measure of services inflation -- excluding energy services and the cost of owning or renting a home -- offered encouragement that tighter monetary policy is proving effective.

In commodity markets, Brent crude oil added 1.44% to $US83.86 a barrel and gold gained 1.18% to US$1,897.83.

In local bond markets, the yield on Australian 2 Year government bonds slipped to 3.15% while the 10 Year fell to 3.59%. Overseas, the yield on 2 Year US Treasury notes fell to 4.13% and the yield on 10 Year US Treasury notes was down at 3.44%.

The Australian dollar edged up to 69.63 US cents from its previous close of 69.05. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, dipped to 95.29.

Asia

Chinese shares rose slightly on Thursday, in line with modest movements in other major Asian markets amid a lack of fresh catalysts and as inflation numbers came in largely within expectations. Telecom and auto makers led gainers, with China Mobile up 2.2%, China Unicom adding 3.0% and BYD gaining 3.1%. Property stocks and some small cap consumption stocks weighed on the market; Gemdale shed 3.8% and Xi'an Catering, whose share price has nearly doubled on-month, fell by about 10%. The Shanghai Composite Index ended 0.1% higher at 3163.45, the Shenzhen Composite Index rose by 0.1% and the ChiNext Price Index was 0.5% higher.

Hong Kong stocks ended the session slightly higher, extending the market's strong start to the year. The benchmark Hang Seng Index edged up 0.4% to settle at 21514.10. Gains continued throughout a wide variety of sectors. Auto maker BYD jumped 5.25%, solar equipment maker Xinyi Solar added 4.1% while oil major PetroChina advanced 3.9%. Financial companies further supported the market, amid rising hopes of asset quality improvement in the new year as China pushes to stabilize the real estate liquidity crisis. Citic Ltd. rose 3.6% and AIA added 3.1%.

Japan's Nikkei Stock Average closed flat at 26449.82 ahead of US inflation data. Gains in banking, insurance and nonferrous metals stocks offset losses in real estate, textile and apparel stocks. Tokyo Kiraboshi Financial Group climbed 7.7%, Life Corporation jumped 9.0% and Sumitomo Metal Mining rose 4.3%. Meanwhile, Daito Trust Construction fell 1.8%, Nomura Real Estate Holdings dropped 2.1% and Seiren lost 2.5%.

Europe

European stocks rallied on Thursday after data showed US inflation eased again in December, supporting expectations that the Federal Reserve will slow the pace of interest rate rises further. The pan-European Stoxx Europe 600 rose 0.73%, while the German DAX and the French CAC 40 both added 0.74%.

Great Britain’s FTSE 100 Index ended 0.9% higher today as several UK trading updates suggested the cost-of-living crisis is not having as big an impact on some sectors as feared, AJ Bell analyst Danni Hewson said in a note.

"Housebuilders and retailers have found plenty to be cheery about, if only because things seem to have brightened considerably for the UK economy in the last few months," IG analyst Chris Beauchamp said in a note. Furthermore, markets benefited from US inflation numbers coming in on target for December and expectations that the Federal Reserve will slow the pace of interest rate rises further.

Persimmon, Barratt Developments and M&G were the session's biggest risers, up 8.3%, 6.7% and 6.2% respectively. B&M European Value Retail was the day's biggest faller, down 4.4%.

North America

US stocks climbed Thursday after the latest inflation data showed cooling price pressures for the sixth consecutive month, likely keeping the Federal Reserve on track to slow its pace of interest rate increases.

The S&P 500 added 0.34%, while the Dow Jones Industrial Average and the technology-heavy Nasdaq Composite both rose 0.64%. The indices bobbed between small gains and losses for much of the morning before gaining steam midday.

Consumer price inflation slowed to 6.5% in December, down from 7.1% in November, the Labor Department said. Despite landing largely in line with economists' expectations, one measure of services inflation -- excluding energy services and the cost of owning or renting a home -- offered encouragement that tighter monetary policy is proving effective.

The so-called supercore inflation, flagged by Federal Reserve Chairman Jerome Powell as especially important given its sensitivity to labor costs, rose at a 3% annualized rate, well below the pace seen last year. Many economists have noted it is normal to see a delay in housing prices falling substantially.

In response to the data, traders grew more confident that the Fed is on course to slow its pace of tightening at its upcoming meeting. Wall Street widely expects the central bank to raise its benchmark rate target by a quarter of a percentage point to a range between 4.5% and 4.75% on Feb. 1.

The data was "a mixed bag when you dig into the nuance," said Andrew Patterson, senior economist at Vanguard. Mr. Patterson added that he will be closely watching Fed officials' comments between now and the end of the month to get a better sense of where the Fed might be headed.

Thursday's rally extends the S&P 500's gains for the month to about 4%. Energy stocks fared best of the index's 11 sectors, rising more than 2.2% alongside higher oil prices.