Global stocks hover near records as US inflation dims rate hike odds

Global stocks hovered near record highs on Friday as benign US inflation data released this week pushed back expectations for a Federal Reserve rate hike, with traders now pricing only a 35% chance of a September increase, down from 55% a week earlier.english.kontan

The US Producer Price Index was unchanged month-on-month in July while rising 4.7% annually, below estimates. Combined with a consumer price index that rose just 0.1%, the data strengthened expectations that the Fed will hold rates steady at its next meeting, with a hike not fully priced until December. The S&P 500 gained 0.65% on Thursday to reach a new record, the Nasdaq rose 0.81%, and the Dow Jones Industrial Average added 0.13%.aa+1

Divergent Fed Voices

Comments from Fed officials reflected a split within the central bank. Cleveland Fed President Beth Hammack repeated her view that rates should be raised to bring inflation back to target, while Richmond Fed President Thomas Barkin said the labor market is vulnerable and inflation may already be drifting lower on its own.globalbankingandfinance

The MSCI All-World index traded just below record highs, set for a third consecutive weekly gain, while the US Dollar Index slipped below the 100 threshold. The US 10-year Treasury yield fell five basis points to 4.66%. Gold pulled back from a two-month peak but remained set for its biggest monthly gain since February, as central banks and investors poured into the metal amid fading expectations of aggressive rate hikes.reuters+1

Geopolitical Risks Lurk

Despite the rally, uncertainty over diplomatic efforts to end the US-Iran conflict continued to weigh on sentiment. Brent crude rose 1.7% on Friday to $88.5 a barrel, heading for a 6% weekly gain, as the US threatened to extend a naval blockade of Iran.reuters

"Currently, the geopolitical uncertainty remains the only major macro roadblock to a market experiencing strong tailwinds from earnings and the monetary policy outlook," said Capital.com strategist Kyle Rodda.reuters

Charu Chanana, chief investment strategist at Saxo, cautioned that the rally remains fragile. "This is still a headline-driven rally rather than a clean risk-on regime," she said. "Without clarity on the Middle East/Hormuz, another oil spike could quickly revive inflation and Fed concerns."english.kontan

Global Funds Ride the Wave

The optimism extended to fund flows, with global equity funds marking their 12th consecutive week of inflows at $18.62 billion, surpassing the prior week's $17.27 billion, according to LSEG Lipper data. In Asia, Japan's Nikkei 225 was on track for a roughly 5% weekly gain, while the broader Topix headed for a record closing high.devdiscourse+1