Asian markets rallied on Thursday as investors breathed a sigh of relief after data showed US inflation was finally falling from a four-decade high, giving the Federal Reserve some leeway to slow the pace of rate hikes.
Below-expected consumer prices were driven by a sharp fall in energy costs, providing a much-needed boost for risk assets across the board.
Wall Street experienced a surge that sent the Nasdaq up more than 2 percent and propelled it into a technical bull market — after rising more than 20 percent from its June lows — while the dollar fell against its peers.
And Treasury yields – a measure of future interest rates – fell.
Stock markets were jittery ahead of Wednesday’s release as many feared a better-than-forecast figure would increase pressure on the Fed to announce another rate hike at its September meeting.
Fears that the bank’s monetary tightening would push the world’s leading economy into recession have dragged markets lower for months, with sentiment already weighed down by several issues including the Ukraine war, supply chain snarls and deteriorating China relations and the US has been clouded.
The positive energy from New York trickled down to Asia, where Hong Kong, Seoul, Taipei and Manila all rose more than one percent, while Shanghai, Sydney, Singapore, Wellington and Jakarta also rose significantly.
But while sentiment was upbeat, analysts cautioned against getting too excited as inflation is still high and will take time to get under control.
“We need to see a few more monthly falls in underlying inflation before the (Fed) can start thinking about pausing its tightening cycle,” Carol Kong of the Commonwealth Bank of Australia told Bloomberg Television.
“The market is still underestimating US inflation and how stubborn it will be in the medium term.”
Meanwhile, Fed officials tried to tone down expectations that they could start cutting borrowing costs as early as next year.
Minneapolis Fed chief Neel Kashkari warned: “We’re a long way from saying we’re close to announcing victory,” while Chicago bank chief Charles Evans added that interest rates “will stay the same for the rest of the year.” of this year and into next year” would continue to increase. .
Investors will be awaiting further comment from policymakers over the next few weeks for an idea of the pace of rate hikes, with still-strong job growth showing the economy has remained resilient despite higher borrowing costs and inflation.
“Inflation has been expected to peak over the summer for some time, so it has been reassuring for markets that there are clear signs that this will be the case,” said Oliver Blackbourn of Janus Henderson Investors .
“However, the Fed will no doubt focus on signs of underlying inflation, especially given a very tight labor market.”
And Thornburg Investment Management’s Christian Hoffmann added: “We shouldn’t be surprised if Fed spokesmen continue to try to belittle the market and risk risky assets.”
Oil prices eased slightly as demand expectations continued to be weighed down by recession worries, with both major contracts trading around 6-month lows and below their pre-Ukraine war levels.
Sales were also boosted by data showing that US inventories were at their highest since December thanks to a pick-up in domestic production, while some flows from Russia to three European countries resumed after a sanctions-related payment dispute was settled had been.
– Key figures at 0300 GMT –
Hong Kong – Hang Seng Index: up 1.2 percent to 19,841.96
Shanghai — Composite: up 0.4 percent to 3,242.21
Tokyo – Nikkei 225: Closed for public holiday
Dollar/Yen: UP at 133.09 yen from 132.89 yen on Wednesday
Euro/Dollar: DOWN at $1.0286 from $1.0299 on Wednesday
Pound/dollar: DOWN at $1.2191 from $1.2213
Euro/Pound: UP at 84.37p from 84.29p
West Texas Intermediate: FALSE, up 0.3 percent at $91.67 a barrel
North Sea Brent Crude: FALSE, up 0.3 percent at $97.14 a barrel
New York – Dow: up 1.5 percent at 33,309.51 (close)
London – FTSE 100: up 0.3 percent at 7,507.11 (close)
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