Asia stocks surge as cooling inflation raises hopes that Fed will ease up

Asian shares spiked higher on Friday, while the dollar nursed steep losses after a smaller-than-expected increase in U.S. consumer prices fuelled hopes that the Federal Reserve could tone down its aggressive pace of interest rate hikes.

MSCI's broadest index of Asia-Pacific shares outside Japan jumped 3.72%. Australia's S&P/ASX 200 index climbed 2.43% and Japan's Nikkei rose 3%.

The U.S. consumer price index climbed 7.7% year on year - the first time since February that the annual increase was below 8%, and the smallest gain since January.

"It's something the market had been waiting for a long time," said Shane Oliver, head of investment strategy and chief economist at AMP Capital. "There was a lot of money sitting on the sidelines."

Overnight, the S&P 500 and Nasdaq notched up their biggest daily percentage gains in over 2-1/2 years on the data.

After four consecutive 75 basis-point interest rate hikes to tame decades-high inflation, the case is now building for the Fed to moderate its aggressive stance, said Rodrigo Catril, senior currency strategist at National Australia Bank in Sydney.

Financial markets have now priced in an 85% likelihood of a smaller, 50 basis-point interest rate hike at the conclusion of next month's FOMC policy meeting, according to CME's Fedwatch tool.

Mainland China stocks opened 2.1% higher, while Hong Kong shares shot up 6.5% in early trade.

China stocks have had a turbulent few weeks - sliding on outbreaks of COVID-19, the ensuing lockdowns as well as feeble economic data, but also surging sporadically on hopes of an eventual economic reopening.

In the currency market, the U.S. dollar index slumped more than 2% overnight to 108.100, the most in over a decade. It was last at 108.230. [/FRX]

The greenback on Thursday recorded its worst day against the Japanese yen since 2016, having fallen 3.7%. It has since clawed back some of those losses and on Friday was up 0.53% at 141.69 yen.

The CPI data sent U.S. Treasury yields to a five-week low overnight. [US/]

Bitcoin fell 1% as crypto exchange FTX scrambles to raise about $9.4 billion from investors and rivals in a bid to save the firm.

Meanwhile, oil prices rose on Friday as fears of a U.S. recession eased but they were on track for weekly declines of more than 4% due to COVID-related worries in China. [O/R]

U.S. crude rose 0.25% to $86.69 per barrel and Brent was at $93.88, up 0.22% on the day.