(Yicai Global) Nov. 11 -- Stock markets around the world have rallied as US inflation fell short of market expectations last month, heightening anticipation that the US central bank will now slow the hiking of interest rates. This might also be the push that is needed to get the Chinese mainland stock markets out of their current slump, analysts said.

The US’ consumer price index, a gauge of consumer inflation, grew at the slowest pace since January in October, expanding 7.7 percent from the same period last year, lower than market expectations of 7.9 percent, according to data released by the US Department of Labor yesterday. It was also much lower than September’s 8.2 percent growth.

Market players now expect the Federal Reserve to slow the pace of its interest hikes and increase rates by 50 basis points next month, rather than the previously anticipated 75 bps.

And the optimism is reflected in the global stock markets. The US’ Nasdaq Composite Index jumped over 7 percent yesterday to close at 11,114.15, while the S&P 500 Index and Dow Jones Industrial Average Index gained 5.5 percent and 3.7 percent, respectively. Today the Shanghai Stock Exchange Composite Index advanced 1.7 percent to close at 3,087.29, and the Hang Seng Index in Hong Kong soared 7.7 percent to end the day at 17,319.96.

The loosening monetary policy and growth in profitability, should boost market confidence which will set the scene for an uptick in the mainland stock markets, Meng Lei, an equity strategist at UBS Securities’ China arm, told Yicai Global.

“We believe the decline in the mainland exchanges has been overly large this year and the current valuation of the CSI 300 Index, which tracks the top performing 300 firms on the Shanghai and Shenzhen bourses, is now at the same lows as in 2016 and 2018, but actually firms are much more profitable than in 2016 and 2018,” Meng said.

In Hong Kong, there could be a ‘short squeeze’ due to the large number of investors who are shorting as conditions suddenly turn favorable, a market insider told Yicai Global. The Hong Kong stock market will bounce back if progress is made in China-US talks on auditing issues by year end.

The news also bolstered the Chinese yuan exchange rate. The offshore Yuan strengthened over 1,200 bps against the US dollar yesterday.

“The change in expectations about the Fed’s rate hikes will make Chinese companies more enthusiastic about conducting settlements in foreign exchange and will probably attract more foreign investment inflows, all of which can help counter the redback’s depreciation,” Wang Ju, head of China FX & rates strategy at French banking group BNP Paribas, told Yicai Global.

However, whether the Fed will slow the pace of its rate hikes still needs verifying, said Joe Perry, a senior analyst at US online trading services firm Gain Capital. There may still be changes as more economic data is released before the Federal Open Market Committee meeting in December, he added.

Editors: Dou Shicong, Kim Taylor