Global stocks rallied on Friday, putting the Nasdaq Composite on course for its best first half performance in 40 years, after lower than expected inflation data gave investors hope that interest rates could soon peak.
The tech-focused index gained 1.3 per cent, leaving it set for its best first half since 1983, according to data from Bloomberg, as investors loaded up on artificial intelligence-related stocks.
Apple shares were up 1.6 per cent, pushing the valuation of the technology group past the $3tn level again.
Wall Street’s benchmark S&P 500 added 1 per cent, extending gains from the previous session and taking gains this year to around 14.5 per cent.
Stock markets have surprised analysts and investors this year, with many having feared that 15 months of interest rate rises from the US Federal Reserve to curb inflation would cause an economic recession and hit market valuations.
“If you believe that the Fed will be successful in slowing the economy down, it’s hard to justify where the equity market is,” said Greg Davis, managing director and chief investment officer at Vanguard. “Right now, something is a bit out of whack.”
US economic data on Friday further raised investors’ hopes that the country’s inflation was cooling without causing a recession.
Its core personal consumption expenditure price index, the Fed’s preferred inflation gauge, slipped to 4.6 per cent in May, below the no-change 4.7 per cent forecast by economists polled by Reuters.
European blue-chip indices have also made gains in the first half of the year, as investors expected that inflation would slow and the European Central Bank’s historic tightening campaign would peak.
The pan-European Stoxx 600 closed the day 1.2 per cent higher, while France’s Cac 40 and Germany’s Dax gained 1.3 per cent each.
London’s FTSE 100, which has trailed other benchmarks in Europe this year, rose 0.8 per cent.
In Europe too, the latest report on eurozone inflation showed that the annual rate of price growth slowed to 5.5 per cent in June, from 6.1 per cent in the previous month, landing 0.1 percentage points below analysts’ expectations.
The closely watched measure of core inflation, which strips out volatile food and energy prices, was also 0.1 percentage points less than forecast, at 5.4 per cent. Together the moves raised hopes that the ECB could halt its policy of raising rates aggressively to damp inflation sooner than expected.
Derivatives markets adjusted their ECB policy predictions, overwhelmingly betting on a quarter-point rate increase in July, and lowering the likelihood of a larger half-point rise. The central bank had last raised its benchmark deposit rate to 3.5 per cent in June.
The yields on the policy-sensitive two-year Treasuries were down 0.01 percentage points to 4.87 per cent, while those on the benchmark 10-year notes edged down 0.03 percentage points to 3.82 per cent. Bond yields rise as prices fall.
China-related equities made moderate gains, with the CSI 300 index gaining 0.5 per cent and Hong Kong’s Hang Seng up 0.1 per cent.
Earlier in the day, China released official purchasing managers’ indices for June showing a contraction in factory activity and weaker than expected growth in services, bolstering calls for Beijing to enact further stimulus measures. “The softer momentum means more policy support is needed to reinvigorate the economy,” analysts at HSBC said.