Markets rise on easing inflation and rate cut bets

Stocks rise on in line inflation data that eases price concerns and strengthens bets on a September Federal Reserve rate cut.

Markets Rally as Inflation Eases and Fed Rate Cut Bets Grow

Stocks climbed to record levels as a line US inflation reading eased price concerns and bolstered bets on a Federal Reserve rate cut in September. The MSCI All Country World Index rose 0.2% to an all-time high, with money markets pricing in a full 25 basis point reduction next month. In Asia, shares advanced with the Nikkei 225 at a fresh peak and Shanghai at its highest level since December 2021.

The gains come as inflation data moves in line with forecasts, easing concerns about price pressures and reinforcing bets on policy easing. Markets across regions show higher risk appetite, with Asia leading the rally and sentiment supported by the sense that the Fed could shift policy next month.

This moment shows how policy bets move markets. When inflation tracks forecasts, traders push bets on rate cuts higher, lifting equities and other assets. Yet the rally rests on the premise that inflation will stay in check and policy makers will act without triggering new price pressures.

As gains widen from the US to Asia, risk management becomes essential. If data surprises to the upside or if inflation cools faster than expected, volatility could reappear. Policymakers face scrutiny over timing and messaging as markets price in continued support.

Highlights

The path of this rally will hinge on the next inflation reads and Fed commentary.