Global stocks and US futures extend their rally after inflation cools sharply

The Federal Reserve may slow its pace of interest rate hikes after US inflation cooled unexpectedly in July.

At 5.20 a.m., futures on the S&P 500 were up 0.11%. The stock index hit its highest level in five months. The futures pointed to a gain at the open.

The Stoxx 600 index was up 0.10% in morning trading. Most equity markets in Asia rose overnight, with China's CSI 300 jumping 2.04% and Hong Kong's Hang Seng gaining 2.40%.

The rate of price rises across the economy hit 8.5% in the year to July, but investors were cheered by a bigger than expected fall in the consumer price index. The year-on-year inflation rate was down from June's rate of 9%.

It gave some relief to the market that a cooling could give the Fed reason to ease up on its monetary tightening.

The central bank will keep raising interest rates until inflation is under control. The president of the Minneapolis Fed and his counterpart in Chicago said inflation is too high.

"There's good news on the month to month data that consumers and business are getting some relief, but inflation remains far too high and not near our price stability goal."

We don't want to make a big deal out of it. She said that they are not near done.

At the Fed's next policy meeting in September, the market is pricing in a 50 basis point rate hike, instead of the 75 basis points previously expected. Analysts warned that it might be too early to make a decision.

The Fed will need to see more evidence of a sustained deceleration in inflation to make a decision on whether to raise the federal funds rate in September.

Other major assets are moving.

• The dollar index fell 0.25% to 104.94, following a sharp drop Wednesday.
• The yield on the key 10-year US Treasury note was down a basis point to 2.769%, as traders dialed down their expectations of Fed rate hikes.
• Walt Disney shares rose 7% in premarket after second-quarter earnings showed a bigger gain in streaming subscribers than expected. Rivian and Warby Parker are on the docket Thursday.
• Brent crude oil was up 0.44% to $97.83 a barrel, while WTI crude added 0.49% to reach $92.40 after the IEA raised its oil demand growth forecast for 2022.
• In cryptocurrencies, ethereum moved 10.7% higher over 24 hours to $1,883.82, according to CoinMarketCap data, after a a successful test of its switch to a "proof of stake" system.