ASX to open higher after Alphabet and Microsoft help Wall St rally

Yet another report on Friday showed inflation remaining stubbornly high. This time it was the measure of prices for March that the Federal Reserve prefers to use, but it wasn’t much worse than forecasts. Financial markets took it much more in stride than a report from the day before that suggested the same measure of inflation rose quickly from January through March.

Treasury yields largely eased in the bond market following Friday morning’s report. The yield on the 10-year Treasury fell to 4.66 per cent from 4.71 per cent late on Thursday. The two-year Treasury yield, which more closely tracks expectations for the Fed, held steadier. It edged down to 4.99 per cent from 5 per cent.

While inflation has remained hotter than forecast, EY chief economist Gregory Daco expects it to cool in coming months as shoppers pressured in part by slowing growth in wages tamp down their purchases, which is the fuel that gives inflation energy.

“Consumers remain willing to spend, but not on anything, nor at any price,” he said.

Economists also said the weaker-than-expected reading on the overall US economy from Thursday, which helped send stocks sliding, may not be as bad as it seemed on the surface.

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“The economy remains on solid footing,” Bank of America economists said in a report, pointing to solid buying trends from US customers. Such an interpretation calms worries that the US economy could be heading for a toxic mix of stagnating growth and high inflation, something that the Federal Reserve doesn’t have great tools to fix.

Still, the higher-than-expected inflation readings will likely keep the Fed on hold at its next policy meeting on Wednesday. Its main interest rate has been sitting at the highest level since 2001 in hopes of undercutting inflation by putting downward pressure on the economy and financial markets.

After earlier indicating that three cuts to interest rates could be on the way this year, top Fed officials have since said they could hold its main interest rate high for a while to ensure inflation heads down toward their 2 per cent target.

Friday’s report on sticky inflation “underscores Vanguard’s belief that the Federal Reserve may find it’s unable to cut interest rates this year,” according to the investment giant’s global head of portfolio construction, Roger Aliaga-Diaz.

If interest rates stay high, companies will need to produce stronger profits for their stock prices to rise. So far this reporting season, the trend has been better than expected.

Roughly three out of four companies have been topping analysts’ forecasts for profit, according to FactSet. That includes ResMed, which reported healthier profit and revenue than expected late Thursday. Its stock jumped 18.9 per cent for Friday’s biggest gain in the S&P 500.

All told, the S&P 500 rose 51.54 points to 5099.96. The Dow added 153.86 to 38,239.66, and the Nasdaq gained 316.14 to 15,927.90.

In stock markets abroad, Japan’s Nikkei 225 rose 0.8 per cent after the Bank of Japan ended a policy meeting with no major changes to interest rates. Indexes also rose across much of the rest of Asia and Europe.