Asian markets moved higher on Wednesday after weaker-than-expected US inflation data reduced expectations of further Federal Reserve interest rate hikes.
Oil prices also stabilised after the United States abandoned a proposal to charge ships travelling through the Strait of Hormuz.
Asian Stocks Rally on Softer US Inflation
Major Asian stock markets recorded gains as investors reacted positively to the latest US inflation figures.
South Korea’s technology-heavy KOSPI surged by around 6% in early trading. Strong gains among semiconductor companies helped drive the sharp advance.
Japan’s Nikkei 225 increased by 0.4%, while MSCI’s broad index of Asia-Pacific shares outside Japan climbed by approximately 1.7%.
The market rally followed a surprising decline in US consumer prices, which eased concerns that the Federal Reserve could raise interest rates again in July.
US Inflation Falls More Than Expected
The headline US Consumer Price Index declined by 0.4% in June. This marked the first monthly fall in consumer prices since the COVID-19 pandemic.
Meanwhile, annual core inflation slowed to 2.6%. Analysts had expected a higher reading of 2.8%.
The softer inflation data strengthened investor confidence that price pressures were gradually easing without causing a major slowdown in corporate earnings.
J.P. Morgan analysts described the combination of lower inflation and positive earnings growth as highly supportive for financial markets.
They added that the report should remove most concerns about a July rate increase. It could also reduce expectations of tighter Federal Reserve policy in September.
July Fed Rate-Hike Probability Drops
Financial markets sharply reduced their expectations of another US interest rate increase.
The estimated probability of a July Federal Reserve rate hike fell by half to around 16%.
Short-term US government bonds rallied following the inflation report. As a result, the two-year Treasury yield dropped by 11 basis points to 4.19%.
The yield had reached a 17-month high of almost 4.3% during the previous session.
Lower bond yields provided additional support to stocks, particularly technology and growth companies whose valuations are sensitive to interest rates.
Wall Street Earnings Support Investor Sentiment
Strong earnings from several major Wall Street banks also helped improve market sentiment.
The positive results suggested that parts of the US financial sector remained resilient despite high borrowing costs and economic uncertainty.
However, IBM shares plunged by approximately 25% after the technology company issued a revenue forecast that fell below analyst expectations.
The sharp decline highlighted investor sensitivity toward disappointing results, particularly among companies associated with the artificial intelligence investment boom.
It also demonstrated how elevated valuations have made technology stocks vulnerable to even small signs of weaker growth.
Nasdaq and S&P 500 Move Higher
US stocks closed higher overnight.
The Nasdaq Composite gained around 0.9%, while the S&P 500 advanced by approximately 0.4%.
US stock futures were also slightly positive during Wednesday’s Asian trading session.
Investors appeared increasingly confident that slowing inflation could allow the Federal Reserve to keep interest rates unchanged while corporate profits continue to expand.
Dollar Weakens as Bond Yields Fall
The US dollar declined against most major currencies following the softer inflation data.
However, it remained relatively strong against the Japanese yen, which continued to trade near weak levels.
The euro held above $1.14, while the Australian dollar maintained most of its recent gains. The Australian currency rose by around 0.8% and tested the important $0.70 level.
Lower US Treasury yields reduced the dollar’s appeal, as investors scaled back expectations for tighter Federal Reserve monetary policy.
Oil Prices Stabilise Near Recent Highs
Brent crude futures stabilised near $85.50 per barrel after gaining more than 12% during the week.
Oil prices had risen sharply due to renewed fighting in the Middle East and concerns about potential disruptions to global energy supplies.
US President Donald Trump reimposed a naval blockade on Iranian ports on Tuesday. He also threatened strikes against power plants and bridges unless Iran returned to negotiations aimed at ending the conflict.
However, the US administration abandoned a proposed 20% charge on vessels passing through the Strait of Hormuz.
The decision reduced immediate concerns about higher shipping costs and allowed oil prices to pause following their strong rally.
Chinese Economic Data Takes Centre Stage
Investors are now focusing on economic data from China.
Upcoming releases include gross domestic product, industrial production and retail sales figures. These reports will provide further evidence about the strength of China’s economic recovery.
Weak domestic demand and problems in the property sector have continued to place pressure on the Chinese economy, despite resilient exports and industrial activity.
The results could influence expectations regarding additional stimulus measures from Beijing.
Major Corporate Earnings Remain in Focus
Corporate earnings will also remain a key driver of global stock markets.
ASML, Europe’s most valuable company and the world’s largest supplier of advanced semiconductor manufacturing equipment, is scheduled to release its latest results.
The company plays an important role in the global artificial intelligence industry because its equipment is essential for producing advanced computer chips.
In the United States, BNY, Johnson & Johnson and BlackRock are expected to report earnings before the opening bell.
United Airlines will release its financial results after the market closes.
For now, Asian markets are benefiting from lower US inflation, stronger corporate earnings and reduced expectations of further interest rate hikes. However, geopolitical risks and demanding technology-sector valuations could continue to create market volatility.
