A man and woman, with their baby in a pram, looking at the ASX stock market boards in Sydney.

ASX rises as Wall Street rallies, cryptocurrency markets are in turmoil

Australian equities started the day higher, extending strong gains recorded in the previous session as cooler than expected inflation in the US prompted speculation of a turning point in the Federal Reserve’s aggressive tightening stance.

The ASX 200 was up 23 points, or 0.3 percent, to 7,181 at 10:28 a.m. AEDT, with mining and energy stocks leading gains.

At the same time, the Australian dollar fell slightly to 66.92 US cents.

The top performers included Champion Iron (+10.9 percent), Core Lithium (+9.6 percent) and Fortescue (+8.6 percent).

Wall Street wins on day two

On Friday, global stocks rallied for a second day on hopes that cooler US inflation would prompt less aggressive rate hikes by the Federal Reserve, a prospect that pushed the dollar into its biggest two-day drop in 13 years.

Crypto exchange FTX filed for US bankruptcy and founder Sam Bankman-Fried resigned as CEO amid oil prices soaring after health officials at the world’s top crude importer China eased some of the country’s severe COVID-19 restrictions.

Gold prices surged to a near three-month high, heading for at least their best week since July 2020 after Thursday’s better-than-expected US consumer price report bolstered bets that the Fed would be less hawkish on rate hikes.

On Wall Street, stocks rose, contributing to the largest daily percentage gains by the S&P 500 and Nasdaq the previous day in more than 2-1/2 years after inflation fell below 8 percent year-on-year for the first time in eight months.

“We have a potential view that the Fed may not need to be as terrible as we’ve been thinking for the past few weeks,” said Marvin Loh, senior global macro strategist at State Street in Boston, of the market’s exuberance.

“The risk could stabilize here.”

The Fed has no choice but to carry on, but if inflation stops rising, it suggests the end of broader tightening could be near, Loh said.

The Dow Jones Industrial Average was up 0.1 percent, the S&P 500 was up 0.92 percent and the Nasdaq Composite was up 1.88 percent.

Investors see a slower pace of US Federal Reserve rate hikes

MSCI’s All-Country World Index rose 1.9 percent on Friday, hitting its highest level since mid-September, when the market reassessed expectations for the Fed’s target rate to under 5 percent, or about 20 basis points from recent highs .

Market bets that the Fed will hike rates by 50 basis points at its next meeting in December increased, while the likelihood of a rate hike decreased by 75 basis points.

“While this year has been incredibly exciting and intriguing from a market perspective, perhaps its crescendo really was yesterday,” said Christian Chan, chief investment officer at AssetMark Financial Holdings Inc.

The CPI report showed that as “the number was withdrawn, it got better and better,” but job markets and corporate margins would come under pressure as the Fed struggles to lower inflation, which would pose potential headwinds for risky assets said Chan.

In Europe, the UK economy contracted in the three months to September at the start of what will likely be a protracted recession.

On Friday, the STOXX 600 index ended the session up 0.1 percent from an 11-week high, with financial services, mining and retail stocks leading gains.

John O’Toole, global head of multi-asset investment solutions at wealth manager Amundi, said stock markets’ reaction to the CPI shows investors are “quite desperately” looking for good news and could overtake themselves.

Interest rates “could stay elevated for an extended period of time, and that’s something the financial markets just don’t have in their prospects,” O’Toole said.

Markets have yet to fully price in the weaker prospects for corporate earnings and jobs, he added.

US dollar falls, bitcoin collapses

Investors flocked to risky assets after the US data, sending the dollar down 1.6 percent on Friday.

The greenback posted its biggest two-day decline since March 2009.

The US benchmark 10-year yield fell below 4 percent on Thursday.

US bond markets were closed for Veterans Day on Friday.

In China on Friday, health authorities eased the country’s severe COVID restrictions, including cutting quarantine periods by two days for close-contact cases and those entering the country.

The country’s blue-chip CSI 300 index rose 2.8 percent and the Hang Seng index rose 7.7 percent.

Oil prices rose after US inflation data but were on track for weekly declines of more than 4 percent amid concerns related to COVID in China.

Brent crude rose $2.32 to $95.99 on Friday.

The turmoil in the cryptocurrency markets over the past week has sent Bitcoin to a two-year low.

Following Friday’s FTX announcement, bitcoin fell 4.17 percent to $16,819.00.

FTX’s native token plunged 28.47 percent to $2,666 after falling 90 percent month-to-date.

ABC/Reuters

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