US: Stocks rally, while dollar drops after latest inflation data

US STOCKS rallied and the dollar tumbled on Thursday following better inflation data that added to hopes of a shift in Federal Reserve monetary policy.

Wholesale prices declined 0.5 per cent in March, according to US data, with the drop largely attributed to a fall in energy prices.

The report came on the heels of US government data Wednesday that showed a generally improving picture on consumer prices, although inflation remained elevated when food and energy costs were stripped out.

“Inflation is on a slowing trend,” said LBBW’s Karl Haeling. “There’s definitely an optimism that the end is near in terms of the Fed’s cycle of interest rate increases.”

All three major US stock indices advanced, led by the Nasdaq, which packed on two per cent following a rally in Apple, Netflix and other big-name tech companies.

In Europe, Paris led its counterparts, jumping 1.1 per cent after luxury giant LVMH reported bumper first-quarter sales. It helped drive the CAC 40 to a fresh record-high for the third session in a row.

London stocks closed 0.2 per cent higher as data showed the UK economy unexpectedly stalled in February.

But the dollar fell to a one-year low against the euro as traders bet on a pivot in Fed policy in the foreseeable future.

‘Wishful thinking’

SEE ALSO

US: Wall St opens higher as economic data ease rate jitters

“There is certainly some optimism that prices are heading in the right direction and that inflation is slowing,” Michael Hewson, chief market analyst at CMC Markets UK, said.

“However, there is also plenty of room for wishful thinking as markets continue to price in the prospect of rate cuts by year-end.”

Investors now have their eyes trained on crucial first-quarter earnings on Friday from top banks including JPMorgan and Citibank following last month’s upheaval in the financial sector, which led to the emergency sale of troubled Credit Suisse to Swiss rival UBS.

“For weeks it’s all about the trajectory of inflation and subsequent interest rate hikes for investors,” noted Nigel Green, head of financial consultancy deVere Group.

“But the focus is now shifting to earnings season,” Green said.

“The big banks will be keenly watched as not only do they often set the mood music for the rest of the season, but also because they are more intricately linked to the rest of the economy than most other sectors,” Green added.

Asian markets ended mixed after a downbeat start.

Hong Kong edged up despite sharp losses in the tech sector that came after the Financial Times reported that Japan’s SoftBank was looking to unload a majority of its holdings in Alibaba. AFP