Stocks rise on eve of US inflation data

LONDON — Stock markets climbed on Wednesday on the eve of highly anticipated US inflation data, with sentiment buoyed by easing geopolitical tensions between Russia and Ukraine.

Sentiment has also been bolstered by easing COVID restrictions in many countries, with London's FTSE 100 hitting a two-year high as tourism stocks have taken off.

Oil prices rebounded from losses the previous day as US data showed stocks fell when analysts had expected an increase.

Nevertheless, investors remain cautious before Thursday's critical US inflation print for January.

Forecasts are for another pop up from the four-decade-high seven per cent seen in December, while a big miss in either direction could have big consequences for markets.

'Markets could get jittery' 

"Inflation figures from the US ... will be a major influence on the direction of markets as the figures will be digested by the Federal Reserve in its next decision on whether to raise interest rates or not," said AJ Bell analyst Russ Mould.

"With expectations that inflationary pressures are going to get worse in the near-term, markets could get jittery as we approach the data release."

A higher reading will pile pressure on the Fed to embark on a more aggressive tightening campaign — but a weaker figure would temper those worries.

"The inflation data has continued to rise faster than many anticipated and we're now in a situation where central banks are racing to catch up and get to grips with price pressures," said Oanda analyst Craig Erlam.

"Many still expect we'll see an orderly return to inflation targets over the forecast horizon with moderate rate increases but the risk of inaction becomes far greater than the alternative."

With speculation swirling over the Fed's plans to battle soaring prices, global equities have fluctuated wildly since the start of the year as traders try to position themselves for a series of interest rate hikes that are likely to begin in March.

The prospect of the removal of cheap cash — which has pushed markets to record or multi-year highs — has particularly hit tech firms as they are more susceptible to higher rates.

However, the sector helped New York's three main indexes to healthy gains on Tuesday, and Asia followed suit.

Hong Kong led the way, jumping more than two per cent thanks to a 6.8 per cent surge in market heavyweight Alibaba after Japan's SoftBank allayed fears it was planning to offload some of its huge holdings in the e-commerce giant.

Earlier, Alibaba had taken a hit on speculation about the share sale, which compounded the Chinese firm's woes after suffering hefty losses owing to Beijing's crackdown on the tech sector.

Europe followed Asia's lead higher, with both Frankfurt and Paris posting climbing 1.6 per cent.

Wall Street also pushed higher, with both the S&P 500 and Nasdaq Composite climbing over one per cent.

"Stocks have experienced a lot of volatility in recent weeks due to worries about the Federal Reserve potentially hiking rates, and rising political tensions in Eastern Europe," said market analyst David Madden at Equiti Capital.

"But the fear factor surrounding those potential outcomes has declined, hence why we are seeing indices drive higher again."