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Slowing inflation: Markets mostly rise on rate hopes but China fears weigh

Markets mostly rose Thursday on signs that more than a year of interest rate hikes around the world was subduing inflation, giving central banks room to take a softer approach to monetary policy.

Investors were also keeping an eye on Beijing, hoping for fresh help for the world’s number-two economy following more weak data that has weighed on sentiment.

Another broadly strong round of corporate earnings out of Wall Street provided support, meanwhile, though disappointing reports from Netflix and Tesla tempered the excitement.

The mood across trading floors has been generally positive of late, with last week’s news that US inflation had slowed more than expected coming alongside healthy data suggesting a recession could also be avoided.

That was compounded by a surprisingly low UK inflation reading Wednesday.

The figures have fanned hopes that the long-running campaign of rate hikes was kicking in and policymakers in Washington and London could tap the brakes.

Comments from a top European Central Bank official this week indicated a similar outlook in Frankfurt.

The Fed is tipped to lift rates at its meeting next week, but expectations are that it will stop after that, though there is still debate about whether it will announce another later in the year.

“With inflation easing and odds for a soft landing rising, investors may adopt an ‘it could have been worse mood’, so perhaps it’s unlikely risk sentiment will drift too far askew,” said Stephen Innes at SPI Asset Management, “especially given the less hawkish implications the global inflation reset will have on central bank interest rates.”

After another positive end on Wall Street, which saw the Dow chalk up an eighth straight advance, Asia battled to take up the baton.

Hong Kong, Shanghai, Sydney, Seoul, Taipei, Manila, Jakarta and Wellington rose. However, Tokyo and Singapore dropped.

However, analysts remained cautious and warned the road ahead could still be bumpy for investors.

“The risk of recession has receded dramatically,” Neil Dutta, at Renaissance Macro Research, told Bloomberg Television.

“I think the markets are right to allocate a little bit more to the soft-landing story, but I think you can make a good case that maybe we’re getting a little bit over our skis here and we should probably put some more potential on the resurgence of the inflationary-boom scenario.”

A lot of the unease on trading floors is centred on China’s troubled economy, with the recovery from years of zero-Covid appearing to have shuddered to a halt, with the threat of deflation lingering.

And investors are growing anxious for Beijing to set measures to reinvigorate growth, with very little concrete coming out so far, apart from some small interest rate hikes and some pledges to aid the property sector.

– Key figures around 0300 GMT –

Tokyo – Nikkei 225: DOWN 1.1 percent at 32,521.88 (break)

Hong Kong – Hang Seng Index: UP 0.6 percent at 19,060.65

Shanghai – Composite: UP 0.1 percent at 3,200.59

Pound/dollar: UP at $1.2952 from $1.2937 on Wednesday

Euro/pound: UP at 86.66 pence from 86.59 pence

Euro/dollar: UP at $1.1224 from $1.1204

Dollar/yen: DOWN at 139.21 yen from 139.71 yen

West Texas Intermediate: UP 0.1 percent at $75.37 per barrel

Brent North Sea crude: UP 0.1 percent at $79.52 per barrel

New York – Dow: UP 0.3 percent at 35,061.21 (close)

London – FTSE 100: UP 1.8 percent at 7,588.20 (close)

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