HONG KONG, Sept 12 — Asian and European markets rallied today, building on the momentum of gains in the United States and elsewhere at the end of last week, as investors price in the expectation of further interest rate hikes aimed at taming inflation.

The euro surged in early trading, a day after German central bank chief Joachim Nagel signalled that the European Central Bank (ECB) would probably continue raising its key rate.

The European single currency rocketed more than 1.4 per cent against the dollar and 1.6 per cent versus the yen.

The ECB raised the key rate by a historic 75 basis points last week, and markets expect a similar-sized hike at an October meeting.

Nagel predicted inflation in Europe might peak at more than 10 per cent in December.

London, Paris and Frankfurt all opened higher today, with bourses in Japan, Australia, Singapore, Taiwan, Jakarta, Malaysia and Thailand also rising.

Markets in Hong Kong, China and South Korea were closed for a public holiday.

This week, investors worldwide will be closely watching US inflation data for August, due to be released tomorrow, with the consumer price index (CPI) expected to ease slightly to eight per cent — still well above the Fed’s two-per cent target.

Traders expect the Fed to impose another large rate hike next week, after two 75-basis-point increases already.

"A downside surprise in US CPI is likely more of a concern and that could see the dollar weakening further,” Charu Chanana, a strategist at Saxo Capital Markets, told Bloomberg Television.

Clifford Bennett, chief economist at ACY Securities, said he expected stocks to "continue to drift higher” ahead of tomorrow’s US CPI data.

"(US CPI) may well see further improvement as petrol prices have continued to pull back,” he said.

"Other components are still likely to be pointing higher, but fuel prices could well dominate this CPI number.” Oil began the week flat, as investors weigh the possibility of global demand weakening as growth slows and China’s harsh zero-Covid policy continues to sap economic activity.

Today, new data showed British GDP expanded by 0.2 per cent in July, according to the Office for National Statistics.

Concerns remain, however, about the overall health of the UK economy.

"July’s GDP remains below the level seen in May, pointing to an overall contraction over the first two months of summer,” said Yael Selfin, chief economist at KPMG UK.

‘Soft landing’ hopes

US Treasury Secretary Janet Yellen yesterday said she was hopeful the US economy could avoid a recession, but that the Fed would need to skilfully manage interest rates and also rely on "some good luck to achieve what we sometimes call a soft landing”.

"My hope is we will achieve a soft landing, but Americans know it’s essential to bring inflation down and, over the longer run, we can’t have a strong labour market without inflation under control,” she told CNN.

Yellen said that while the US economy’s growth rate was slowing, the labour market remained "exceptionally strong”, with almost two openings for every jobseeker.

In addition to the US CPI figures tomorrow, traders will be closely watching UK CPI on Wednesday, and European CPI and China home sales, retail sales and industrial production data on Friday.

In Tokyo, stocks closed higher today with gains by tech shares and a weaker yen boosting the market.

The dollar fetched 143.18 yen in Asian trade, against 142.56 yen on Friday in New York.

"A cheaper yen is positive for corporate performances, despite recent media reports” that highlight the negative aspects of the weak yen, said chief strategist Masayuki Kubota of Rakuten Securities.

On Friday, Bank of Japan chief Haruhiko Kuroda met Prime Minister Fumio Kishida, saying the rapid weakening of the currency was "undesirable”, an indication of possible upcoming action to arrest the fall. — AFP