HONG KONG – Asian markets yesterday leapt on optimism that the Federal Reserve’s long-running campaign of interest rate hikes could be near an end after data showed 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 on Wednesday when the US Labour Department said the consumer price index came in at 3.0% in June, the lowest since March 2021 and sharply down from 4.0% in May. The Fed’s target is 2%.
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,” Lael Brainard, director of the National Economic Council and a former Fed vice chairperson, told the Economic Club of New York. Also on 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 1% 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 2% while Tokyo, Shanghai, Sydney, Seoul, Singapore and Manila were all up more than 1%. Mumbai, Bangkok and Wellington were also higher.
Paris extended its rally at the open, while London and Frankfurt were flat.
The US dollar struggled to rebound from extended losses on Wednesday against its main peers, with the yen holding below 139 to the greenback, sterling hovering at a 15-month high above US$1.30 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. Hong Kong’s tech giants were among the Hang Seng Index’s best performers on hopes that China’s crackdown on the sector is near an end. That optimism was boosted by state media reports that Premier Li Qiang met representatives from industry leaders including Alibaba and TikTok’s Chinese counterpart Douyin on Wednesday.
Li “listened to the opinions and suggestions” of the sector for a “healthy development” of the digital economy, broadcaster CCTV said.
Representatives of Alibaba’s cloud computing arm, e-commerce champions JD.com and Pinduoduo, and social networks Douyin and Instagram-like Xiaohongshu were among those present.
“I hope many digital companies will firmly believe in the future,” said Li, according to CCTV. The imposition of hefty fines for fintech affiliates of Tencent and Alibaba last week was seen as a signal the painful crackdown had wound down.
Willer Chen, at Forsyth Barr Asia, said: “Key signal-sending from the government is still hoping that platform companies will create more jobs, maintaining international competitiveness and helping the real economy.” Traders are also keeping watch for any statements out of Beijing after officials announced a series of pledges to support the struggling property sector and indicated other growth-boosting measures would be outlined.
Expectations for more work were boosted by data showing Chinese exports plunged more than 12% last month while imports were also sharply down. – Nampa/AFP