Asian markets were higher on Wednesday after a surprise slowdown in U.S. inflation scaled back market expectations for interest rate hikes, while oil took a breather as the U.S. scrapped a plan to levy shipping through the Strait of Hormuz.
Stellar earnings at Wall Street banks also had investors cheering, though a 25% drop in IBM’s IBM.N share price, after the technology company’s revenue forecast missed analyst expectations, showed how stretched and skittish the market’s rally in AI-related stocks has become.
South Korea’s chipmaker-heavy KOSPI surged 6% in early trade and Japan’s Nikkei rose 0.4%. broadest index of Asia-Pacific shares outside Japan rose 1.7%.
In currencies, the U.S. dollar dropped except against the stubbornly weak yen. Meanwhile, short-end bonds rallied, taking two-year Treasury yields down 11 basis points to 4.19% from Tuesday’s 17-month high of nearly 4.3%.
The U.S. headline consumer price index fell 0.4% in June, its first decline since the COVID-19 pandemic, while annualised core inflation of 2.6% compared with expectations for 2.8%.
“For market bulls this is even better than Goldilocks could have imagined,” J.P. Morgan analysts said in a client note.
“Inflation (is) lower with positive earnings growth. This print should remove any fears over a July rate hike and may assuage fears on September, too. This sets up the market to move higher and to broaden as it does so.”
Market pricing for the chance of a U.S. interest rate hike in July halved to 16%.
The euro steadied above $1.14 and the Australian dollar was hanging on to a 0.8% gain and testing $0.70.
Brent crude futures steadied around $85.50 a barrel, having gained more than 12% this week on a flare-up in Middle East fighting.
U.S. President Donald Trump reimposed a naval blockade of Iranian ports on Tuesday and threatened to attack power plants and bridges next week unless Iran resumes negotiations to end their conflict, though he scrapped a plan for a 20% fee on shipping through Hormuz.
Overnight the Nasdaq rose 0.9% and the S&P 500 climbed 0.4%. U.S. futures,were slightly higher on Wednesday.
Chinese gross domestic product, industrial production and retail sales data will be in focus during Asian trade ahead of earnings for Europe’s most valuable company, ASML, the world’s biggest supplier of equipment used to make AI chips.
In the U.S., BNY, Johnson & Johnson and Blackrock report earnings before the morning bell and United Airlines after market close.
(Reuters)
