HONG KONG (AFP) – Asian markets leapt yesterday on optimism that the Federal Reserve’s long-running campaign of interest rate hikes could be near an end after data showed United States (US) inflation rose less than expected last month.
Traders already had a spring in their step this week on signs that the US central bank’s monetary tightening measures were kicking in, fanning speculation that this month’s expected hike could be the last of an elongated cycle.
And the mood brightened further Wednesday when the US Labor Department said the consumer price index came in at three per cent in June, the lowest since March 2021 and sharply down from four per cent in May. The Fed’s target is two per cent.
On top of that, the “core” rate, which excludes the volatile food and energy components and is seen as a better sign of underlying inflation, sank to its lowest since 2021.
The readings follow last week’s better-than-hoped personal consumption expenditures data – seen as the Fed’s preferred gauge – and stoked bets that it will hike just once more this month before calling it quits.
Analysts also pointed out that, while showing signs of softness, the economy remained in rude health and the labour market was still robust, suggesting the recession many had feared earlier this year could be avoided.
“The economy is defying predictions that inflation would not fall absent significant job destruction,” director of the National Economic Council and a former Fed vice chair Lael Brainard told the Economic Club of New York.
Also Wednesday, the Fed’s “beige book” survey of the economy showed activity had improved since late May thanks to strong tourism and travel.
Wall Street cheered the latest figures on Wednesday, with the Nasdaq up more than one per cent as tech firms are more susceptible to borrowing costs, while European markets also surged.
Asia happily picked up the baton, with Hong Kong up more than two per cent while Tokyo, Shanghai, Sydney, Seoul, Singapore and Manila were all up more than one per cent. Mumbai, Bangkok and Wellington were also higher.
Paris extended its rally at the open, while London and Frankfurt were flat.
The dollar struggled to rebound from extended losses Wednesday against its main peers, with the yen holding below 139 to the greenback, sterling hovering at a 15-month high above USD1.3 and the euro at multi-month highs.
“The nature of (the) numbers suggest that whatever other Fed officials would have us believe in the context of their current hawkishness, further rate hikes beyond this month will be a big ask, and probably won’t happen,” said Michael Hewson at CMC Markets.
