San Francisco Frontiers - Stocks rally, dollar dips further on easing rate expectations

The surprise on-month drop in producer prices in March -- and the biggest since April 2020 -- came a day after the consumer price index dropped more than expected, suggesting the central bank's tightening campaign was finally paying off.

A higher-than-forecast reading on jobless claims added to the positive mood, which helped send Wall Street's three main indexes rallying, including a two percent advance for the Nasdaq.

Investors are now betting the Fed will hike rates 25 basis points at its May gathering but possibly hold after that, with some still clinging to hopes it will even cut by the end of the year.

This week's data has reassured investors that inflation is coming down and that the economy could be heading for a soft landing, even though minutes from the Fed's March policy meeting revealed some officials see a mild recession by the year's end.

"Coming fast on the heels of yesterday's better-than-expected (consumer prices) reading, today's (producer price index) print, plus the in-line jobless claims report, reinforces the view that the labour market continues to rebalance and that the post-pandemic inflation scare is ending," said SPI Asset Management's Stephen Innes.

"And as we move into the seventh-inning stretch, where arguably much could happen between now and the final pitch, the combination of progress on inflation and the softer labour market has been encouraging.

"It reinforces the view that the Fed may be in the 9th inning of the hiking cycle, which markets seem to be endorsing today as yields on 10-year Treasuries declined."

Asian equities rose in early trade Friday, with Tokyo leading the way followed by Hong Kong, Shanghai, Sydney, Seoul, Taipei, Manila and Jakarta.

"Inflation is not surprising to the upside," Que Nguyen, at Research Affiliates, said.

"At the same time, the job market seems stable. And so what we're getting today is sort of an optimistic outlook that we're going to have an almost like a Goldilocks situation where inflation's going to slow, but the economy is not crashing."

With Thursday's data lowering expectations for where rates will top out, the dollar has come under pressure, hitting a one-year low against the euro. And it continued to struggle Friday, falling further versus the single currency, while the pound was at its best level since June.

Focus now turns to the corporate earnings season, which kicks off in earnest Friday with results from banking titans including JPMorgan Chase, Wells Fargo and Citigroup.

Traders are keenly awaiting their outlook statements in light of the upheaval in the banking sector last month that saw three US lenders go under and Credit Suisse bought by rival UBS.

Oil prices rose in Asian business, extending a rally sparked by major producers' decision this month to slash output by more than a million barrels a day.

The OPEC+ group said Thursday the move had put world markets on course to be in deficit, which will widen as the year goes on, with China's reopening adding extra pressure.

- Key figures around 0230 GMT -

Tokyo - Nikkei 225: UP 1.0 percent at 28,433.11 (break)

Hong Kong - Hang Seng Index: UP 0.5 percent at 20,445.97

Shanghai - Composite: UP 0.3 percent at 3,328.75

Euro/dollar: UP at $1.1059 from $1.1050 on Thursday

Pound/dollar: UP at $1.2529 from $1.2526

Dollar/yen: DOWN at 132.54 yen from 132.65 yen

Euro/pound: UP at 88.27 pence at 88.20 pence

West Texas Intermediate: UP 0.5 percent at $82.56 per barrel

Brent North Sea crude: UP 0.5 percent at $86.48 per barrel

New York - Dow: UP 1.1 percent at 34,029.69 (close)

London - FTSE 100: UP 0.2 percent at 7,843.38 (close)

-- Bloomberg News contributed to this story --

D.Parker--SFF