Global stocks rise and dollar falls, with focus on Fed and China

Global stocks ticked higher and the dollar slipped on Tuesday as a fall in US inflation and an improving outlook for China's economy continued to cheer investors.

Equities and bonds rallied dramatically around the world last week after data showed that US inflation slowed down by more than expected in October. The figures raised hopes that the Federal Reserve will let up on the aggressive interest rate hikes which have battered global markets this year.

The sugar rush has faded since but the mood has remained relatively bright, with the MSCI All World stock index .MIWD00000PUS edging 0.4% higher on Tuesday to 617.23. It stood at 582 before the release of the inflation data on Thursday.

The dollar was last down 0.27% against Japan's yen JPY=EBS to 139.53, just above Thursday's three-month low. Meanwhile, the euro EUR=EBS was up 0.64% against the greenback to a more than four-month high of $1.039.

"Markets are driven by two factors in the moment. One is optimism that inflation data in the US is peaking out... and on top of that we've had growing optimism that we could see China adopt more growth-friendly policies," said Lee Hardman, currency analyst at MUFG.

Chinese and Hong Kong stocks rallied again overnight as investors digested the implications of China's Covid-19 policy adjustments and a property sector rescue package, as well as a cooling in tensions between the US and China. Beijing last week eased some of its strict Covid rules, including shortening quarantines by two days, though there are concerns over the sharp increase in new infections seen in some cities this week.

Hong Kong's Hang Seng Index .HSI surged 4.11% overnight. In a remarkable bounce, the index is up nearly 25% for the month while China's CSI 300 .CSI300 has gained 10% in that time.

The Hong Kong bounce came after US President Joe Biden and China's President Xi Jinping held a three-hour meeting on Monday in Bali on the sidelines of the G20 gathering. Investors welcomed the two countries' pledge of more frequent communications.

Europe's Stoxx 600 index .STOXX was roughly flat after three days of gains. Futures for the US S&P 500 ESc1 stock index were up 0.63%.

With inflation and central bank policy still the main focus, investors eagerly awaited US producer price index (PPI) figures due out later on Tuesday as well as a speech from Philadelphia Fed President Patrick Harker. Analysts cautioned that a strong PPI reading could sour the mood in still-fragile markets.

The yield on the benchmark 10-year US Treasury note US10YT=RR fell 3 basis points (bps) on Tuesday to 3.837%. The yield, which moves inversely to the price, stood as high as 4.338% at the end of October but has plunged in recent days.

Fed Vice Chair Lael Brainard on Monday struck a relatively upbeat tone, saying the central bank has "more work to do" but that it will "probably be appropriate to soon move to a slower pace" of interest rate hikes.

Data out Tuesday showed that the British unemployment rate rose in September. German business sentiment data was due at 1000 GMT.

Oil prices slipped slightly in a sign of residual concerns about the health of the global economy, with Brent crude LCOc1 down around 1% to $92 a barrel.

Bitcoin BTC=BTSP was up 1.1% to $16,769 but remained around 20% lower for the month. The collapsed FTX crypto exchange outlined a "severe liquidity crisis" in official bankruptcy filings released on Tuesday.

The Group of 20 (G20) meetings continued in Indonesia, with leaders considering a draft resolution on Tuesday in which most members strongly condemn the war in Ukraine.