Wall Street rallies on cooler-than-expected US inflation report

Investors continue to keep an eye on Donald Trump's policies as he prepares to take office again

A trader at the New York Stock Exchange. The US economy remains healthy but challenges remain, especially with Donald Trump's looming return to the White House casting clouds of uncertainty. EPA

Wall Street rallied to close higher at the end of the penultimate trading week of 2024, lifted by a lower-than-expected US inflation report that allayed some investor concerns about the coming second administration of Donald Trump.

The Personal Consumption Expenditure index, which is the US Federal Reserve's preferred measurement of inflation, rose at an annual 2.4 per cent in November, official data showed on Friday, below analyst estimates of 2.5 per cent, but still above the central bank's 2 per cent goal.

Consumer spending, which makes up two-thirds of the US economy, added 0.4 per cent last month, another sign that the world's biggest economy is doing relatively well.

The Fed on Wednesday slashed its key interest rate for the third time in 2024 to stimulate economic activity as inflationary pressures subside. It has forecast two more rate cuts in 2025.

The Fed began its easing cycle with a 50-basis point cut in September as inflation slowed, after keeping rates at a 22-year high for more than a year. Last month, the regulator lowered the interest rate on reserve balances by 25 basis points.

The US entered a monetary easing cycle as the Fed aimed to prevent a recession and guide the economy to a soft landing.

Still, challenges remain, especially with Mr Trump's looming return to the White House casting clouds of uncertainty about his economic policies and tariff threats.

"The US yield curve is steepening, investors are not willing to buy longer-dated maturities on prospects of higher long-term inflation and ballooning debt," said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

On Wall Street, the Dow Jones Industrial Average climbed 1.2 per cent and the S&P 500 added 1.1 per cent for their best daily gains since early November. The tech-heavy Nasdaq Composite rose 1 per cent.

Still, the Dow, S&P 500 and Nasdaq fell for the week, retreating 2 per cent, 2.3 per cent and 1.8 per cent, respectively. For the year, they are up 13.7 per cent, 24.3 per cent and 30.4 per cent.

In Europe, London's FTSE 100 dropped to a one-month low before settling 0.3 per cent down for its worst showing since October on concerns over Mr Trump's threats to raise tariffs on Europe.

Paris's CAC 40 retreated 0.3 per cent and Frankfurt's DAX closed 0.4 per cent down.

Earlier in Asia, major bourses declined as investors tried to absorb the Fed's hawkish turn, in addition to Mr Trump's economic plans that include potentially higher tariffs.

Tokyo's Nikkei 225 settled 0.3 per cent lower, while Hong Kong's Hang Seng Index slipped 0.2 per cent and Shanghai Composite inched down 0.1 per cent.

In commodities, oil prices settled higher but still recorded a weekly loss due to concerns over crude demand growth next year, particularly in China.

Brent closed 0.08 per cent higher at $72.94 a barrel, while West Texas Intermediate added 0.12 per cent to $69.46. For the week, Brent and WTI slid 2 per cent and 1.9 per cent, respectively.

Gold, meanwhile, added 1.1 per cent to reach $2.623.18 an ounce, but still posted a weekly loss on the soft US inflation data.