San Francisco Frontiers - Markets rally as traders weigh latest US data, rates outlook

The mood was helped by forecast-beating earnings from US banking titans that eased concerns about the sector after last month's turmoil that saw three regional lenders go under.

Investors built on last week's broad rally that came on the back of data showing inflation falling quicker than estimated last month, which fanned hopes the Fed will bring its interest rate hiking campaign to an end soon.

Analysts said that while the one percent drop in retail sales -- double what was forecast -- could give the US central bank more room to pause, it also revived worries that the world's top economy could tip into recession.

Despite figures pointing to prices falling, a survey by the University of Michigan on Friday showed consumers' expectations for inflation rose this month to 4.6 percent annually, from 3.6 percent in March.

Meanwhile, Fed governor Christopher Waller dented hopes the bank will ease back on its tightening campaign soon, saying on Friday that rates should continue going up as inflation remained elevated.

"Because financial conditions have not significantly tightened, the labour market continues to be strong and quite tight, and inflation is far above target, so monetary policy needs to be tightened further," he warned.

"How much further will depend on incoming data on inflation, the real economy, and the extent of tightening credit conditions."

Commentators said there is a broad belief the Fed will hike borrowing costs 25 basis points next month, though some say another rise could be in the pipeline for June.

Asian investors got off to a slow start in Asia but confidence picked up as the day wore on.

Hong Kong and Shanghai led gains, climbing more than one percent, while there were also advances in Tokyo, Sydney, Seoul, Taipei, Manila, Bangkok and Wellington.

London, Paris and Frankfurt all rallied out of the blocks.

- 'Increasing volatility' -

But concerns remain for the outlook.

Frances Stacy, at Optimal Capital Advisors, warned: "I don't think all of the rate hikes have worked their way through the system and it looks as though the Fed is going to continue to tighten.

"I don't think we're completely out of the woods yet, but that doesn't mean that the risk is going to happen overnight, but when something does hit, markets can gap down pretty dramatically."

Marty Dropkin, of Fidelity International, added: "The recent banking fallout may have been contained but its effects have reverberated across global equity markets. The banking industry's vulnerabilities are a sign of a tighter monetary policy environment, which will lead to even tighter financial conditions.

"We remain cautious on global equities and anticipate increasing volatility as top line pressures worsen in the coming months as labour and financing costs rise and other cyclical indicators become weaker."

Financials in Asia were on the front foot after earnings reports from Wall Street giants JPMorgan Chase and Citibank beat forecasts.

The figures soothed worries about the state of the banking sector, which rattled markets last month after the collapse of three US lenders and a takeover of Credit Suisse.

Traders are keenly awaiting the release of Chinese growth data Tuesday, which will provide the first snapshot of how the economy fared in the first full quarter without painful zero-Covid restrictions in place.

Analysts polled by AFP expect an average of 3.8 percent year-on-year growth in January-March.

- Key figures around 0720 GMT -

Tokyo - Nikkei 225: UP 0.1 percent at 28,514.78 (close)

Hong Kong - Hang Seng Index: UP 1.7 percent at 20,778.20

Shanghai - Composite: UP 1.4 percent at 3,385.61 (close)

London - FTSE 100: UP 0.4 percent at 7,906.54

Euro/dollar: DOWN at $1.0988 from $1.0997 on Friday

Pound/dollar: UP at $1.2419 from $1.2416

Dollar/yen: UP at 134.00 yen from 133.75 yen

Euro/pound: DOWN at 88.48 pence at 88.53 pence

West Texas Intermediate: FLAT at $82.54 per barrel

Brent North Sea crude: UP 0.1 percent at $86.37 per barrel

New York - Dow: DOWN 0.4 percent at 33,886.47 (close)

C.Diaz--SFF