Most markets track Wall St rally but China weighs on optimism

Asian markets mostly rose Wednesday following a Wall Street rally as investors grow increasingly optimistic that the Federal Reserve will soon end its interest rate hiking cycle and the US economy will avoid a feared recession.

Another batch of forecast-topping earnings in New York added to the upbeat mood as the corporate earnings season gets under way, though worries over China's growth outlook cast a shadow.

Data last week showing US inflation continued to fall towards the Fed's target was among a series of indicators pointing to an economy that was slowing but still in rude health.

Reinforcing that view, the latest readings showed retail sales rose less than expected in June, though that was offset by an upward revision for May, while industrial output also came in slightly below estimates.

However, traders looked past those figures to focus on news that earnings from Morgan Stanley, Bank of America and Charles Schwab all topped estimates. That came after similarly positive reports from JPMorgan Chase and Wells Fargo.

"The markets appear to be focused more on the forward outlook from Corporate America than the backward insight from the macro (figures)," said SPI Asset management's Stephen Innes.

"When viewed through the cooling inflation lens, investors are shifting gears from inflation/recession concerns to higher soft landing/disinflationary probabilities."

Traders are now looking ahead to the Fed's policy meeting next week, where it is expected to hike rates once again, though the focus will be on its guidance for the future, with analysts debating whether it will hold or announce one more this year.

Fears over global inflation have seen central banks ramp rates higher for more than a year, fuelling uncertainty among investors, though they were given hope Wednesday with news that UK inflation had slowed more than expected last month. The news sent sterling tumbling against the dollar.

Earlier in the day the Asian Development Bank said it had cut its inflation forecast for developing Asia, citing easing food and fuel prices, waning supply chain disruptions and interest rate hikes starting to bite.

- UK inflation slows -

In New York, the Dow clocked a seventh-straight gain -- its best run in more than two years -- as all three indexes piled higher.

Most of Asia followed suit, with Tokyo, Sydney, Singapore, Mumbai, Wellington, Bangkok and Manila well in the green, while Shanghai reversed early losses to inch up marginally.

However, Hong Kong was hit by a drop in tech firms.

London rallied more than one percent on the inflation news, while Paris and Frankfurt were also in positive territory.

While the outlook for the US economy is looking brighter, there is increasing worry about China's after news Monday that it had grown far slower than forecast in the second quarter while consumers remained cautious and inflation had flatlined.

Months of disappointing figures have stoked talk that authorities will unveil a range of stimulus, but apart from small interest rate cuts in June and some pledges to support the struggling property sector, there has been little of substance out of Beijing.

Still, observers warn that with the country's local governments struggling with mountains of debt, officials' scope for wide-ranging measures was limited.

"The market pessimism around Chinese equities is probably at a level of extreme," John Lin, of AllianceBernstein, told Bloomberg Television.

"At this point, little policies probably aren't enough. You need something bigger, something to sort of shock people out of the slumber."

Alicia Garcia Herrero at Natixis CIB added: "The question... is whether (the) poor GDP data will move policymakers toward introducing a big stimulus, not only to be sure that the five percent growth target is reached in 2023 but also to avoid a very rapid deceleration in growth in 2024 once the base effects from the terrible 2022 data are no longer positive."

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: UP 1.2 percent at 32,896.03 (close)

Hong Kong - Hang Seng Index: DOWN 0.3 percent at 18,952.31 (close)

Shanghai - Composite: FLAT at 3,198.84 (close)

London - FTSE 100: UP 1.3 percent at 7,548.34

Euro/dollar: DOWN at $1.1227 from $1.1235 on Tuesday

Dollar/yen: UP at 139.47 yen from 138.87 yen

Pound/dollar: DOWN at $1.2952 from $1.3040

Euro/pound: UP at 86.69 pence from 86.13 pence

West Texas Intermediate: DOWN 0.3 percent at $75.56 per barrel

Brent North Sea crude: FLAT $79.64 per barrel

New York - Dow: UP 1.1 percent at 34,951.93