Australia

Australian shares are set to edge higher following gains on Wall Street following strong remarks from the US Fed and actions from the European Central Bank targeting inflation.

ASX futures were up 4 points or 0.05% at 6849 as of 7:00am on Friday, pointing to a slight gain at the open.

US stocks ticked higher, reversing losses in early morning trading as investors digested remarks from Federal Reserve Chairman Jerome Powell, and the European Central Bank took forceful action of its own to tamp down inflation with a 0.75-point rate hike.

The S&P 500 rose 0.7%. The blue-chip Dow Jones Industrial Average added 0.6%, while the tech-heavy Nasdaq Composite gained 0.8%.

Stocks have mostly weakened in recent sessions as investors have worried about the twin threats of rising interest rates and sluggish global economic growth. Global central banks have a difficult balancing act, as they tighten monetary policy to tame inflation, while seeking to avoid excessive harm to already struggling economies.

Speaking at a virtual conference hosted by the Cato Institute on Thursday, Federal Reserve Chairman Jerome Powell affirmed that the central bank needs to act strongly in order to tame price pressures and prevent the public from thinking of high inflation as the norm. In recent appearances, Mr. Powell has doubled down on his message that fighting inflation remains the central bank's primary goal, even if economic growth suffers as a result.

Investors are expecting a third consecutive 0.75-point rate increase given recent public statements and interviews ahead of the Fed's meeting later this month.

"I don't expect any letup on the rate hikes. I think it will continue at an aggressive pace," said Megan Horneman, chief investment officer at Verdence Capital Advisors. "And I think that needs to happen until we have more consistent evidence that inflation really is turning over and will continue to turn over."

In commodity markets, Brent crude oil gained 0.72% to $US88.63 a barrel, gold fell 0.64% to US$1,707.33.

In local bond markets, the yield on Australian 2 Year government bonds dropped to 2.87% while the 10 Year fell to 3.56%. Overseas, the yield on 2 Year US Treasury notes rose to 3.50% and the yield on the 10 Year US Treasury notes rose to 3.31%.

The Australian dollar hit 67.48 US cents down from the previous close of 67.67. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged up to 101.45.

Asia

Chinese stocks ended the session lower, as investor sentiment continued to weaken amid the country's latest Covid-19 resurgence and significantly tightened measures in cities such as Chengdu. The benchmark Shanghai Composite Index edged down 0.3% to settle at 3235.59, while the Shenzhen Composite Index lost 0.9% to 2104.39. The ChiNext Price Index fell 1.9% to 2523.01. A mixed bag of sectors weighed on the market, with electric-car battery makers, agricultural companies and electronics suppliers leading losses.

Hong Kong's Hang Seng Index edged 0.1% higher at 19066.50 amid a broadly positive start in Asian markets. Investor sentiment has likely improved after Wall Street stocks gained overnight due to lower U.S. 10-year Treasury yields, KGI Securities analysts say in a note. Gainers include Techtronic Holdings, which is up 2.4%, while Haidilao International trades 2.0% higher and Xinyi Solar adds 1.6%. Decliners include PetroChina, which is down 2.4%.

Japanese stocks ended higher, led by gains in airline and tech stocks, as concerns ease somewhat about costs of fuel and borrowing. Japan Airlines adds 4.0% and Rakuten Group is 3.3% higher. Meanwhile, energy stocks are lower following drops in crude-oil prices overnight. Investors are closely watching movement of bond yields ahead of the European Central Bank's rate decision later in the day. The Nikkei Stock Average is 1.7% higher at 27897.08.

Europe

European stocks were mixed in closing trades after the European Central Bank raised interest rates by an unprecedented 75 basis points Thursday. The Pan-European Stoxx Europe 600 rose 0.5%, the French CAC 40 added 0.3%, but the German DAX fell 0.1%.

The ECB signaled further aggressive rate hikes but "overall the mood seems to be much more positive than might have been expected in a week that has seen Russia cut Europe off from gas supplies," IG analyst Chris Beauchamp writes. "The selling of late August and early September seems to have been exhausted for now, although the broader outlook is still less than encouraging."

The FTSE 100 gained 0.2%. U.K. Prime Minister Liz Truss's energy bill includes a price cap on business energy bills, which is a quick and positive intervention, the British Chambers of Commerce say. The British business network, which had previously called for the measure, say the move will provide businesses with some financial certainty on outlook for the next six months--though it adds there must be a clear long-term plan to give firms the confidence to grow if the U.K. is to revitalize its economy. "However, given the other challenges still facing business on labor shortages, supply-chain disruption, and rising raw material costs, it is unlikely that we will see greater investment from business in the short term," the BCC says.

North America

US stocks ticked higher, reversing losses in early morning trading as investors digested remarks from Federal Reserve Chairman Jerome Powell, and the European Central Bank took forceful action of its own to tamp down inflation.

The S&P 500 rose 0.7%. The blue-chip Dow Jones Industrial Average added 0.6%, while the tech-heavy Nasdaq Composite gained 0.8%.

Stocks have mostly weakened in recent sessions as investors have worried about the twin threats of rising interest rates and sluggish global economic growth. Global central banks have a difficult balancing act, as they tighten monetary policy to tame inflation, while seeking to avoid excessive harm to already struggling economies.

Speaking at a virtual conference hosted by the Cato Institute on Thursday, Federal Reserve Chairman Jerome Powell affirmed that the central bank needs to act strongly in order to tame price pressures and prevent the public from thinking of high inflation as the norm. In recent appearances, Mr. Powell has doubled down on his message that fighting inflation remains the central bank's primary goal, even if economic growth suffers as a result.

Investors are expecting a third consecutive 0.75-point rate increase given recent public statements and interviews ahead of the Fed's meeting later this month.

"I don't expect any letup on the rate hikes. I think it will continue at an aggressive pace," said Megan Horneman, chief investment officer at Verdence Capital Advisors. "And I think that needs to happen until we have more consistent evidence that inflation really is turning over and will continue to turn over."

The ECB, facing a similar dilemma, opted to raise its key interest rate by 0.75 percentage point Thursday. The continent is facing an energy crisis that threatens to tip its economy into recession, while inflation in the eurozone is at a record high. The hike, which lifts the ECB's main rate from zero, is its largest since 1999. It comes after the bank raised rates by half a percentage point in July, its first rate rise in more than a decade.

In the US, investors say economic data hasn't yet been a cause for alarm, though a stronger economy could afford the Fed greater leeway to tighten in its battle against inflation.

"Company balance sheets are relatively strong and consumer balance sheets are relatively strong," suggesting any recession could be relatively shallow, said Aoifinn Devitt, chief investment officer at Moneta Group. "But the good news is also bad news because it means the Fed can continue to raise rates."

On the economic front, initial jobless claims, a proxy for layoffs, fell to a seasonally adjusted 222,000 last week from a revised 228,000 the previous week, the Labor Department said Thursday. The latest claims data shows that the US job market remains strong despite cooling from earlier this year.