Asian Shares Rise as US Consumer Inflation Cools

by Warren Seah

Asian shares saw an increase on Thursday following Wall Street’s surge to its highest level in over a year. The boost came after a report revealed that U.S. consumer inflation cooled slightly more than anticipated in the previous month.

Market Performance

  • Japan’s benchmark Nikkei 225 NIK, +1.29% rose by 1.3% during morning trading.
  • Australia’s S&P/ASX 200 XJO, +1.46% recorded a gain of 1.4%.
  • South Korea’s Kospi 180721, +0.92% experienced a nearly 1.0% surge.
  • Hong Kong’s Hang Seng HSI, +2.56% witnessed a substantial increase of 2.4%.
  • The Shanghai Composite SHCOMP, +0.81% rose by 0.8%.
  • Benchmark indexes in Singapore STI, +1.59%, Taiwan Y9999, +1.44%, and Indonesia JAKIDX, +0.07% also saw gains.

Focus on China’s Trade Data

Investors kept a close eye on China’s monthly trade data to understand the current state of the world’s largest economy following the lifting of pandemic controls last year.

Wall Street Update

On Wall Street, major indices posted gains:

  • The S&P 500 SPX, +0.74% surged by 0.7% to reach its strongest closing level since April 2022.
  • The Dow Jones Industrial Average DJIA, +0.25% rose by 0.3% to 34,347.43.
  • The Nasdaq Composite COMP, +1.15% experienced a gain of 1.2% to 13,918.96.

Broad-Based Rise in Stocks

Most stocks witnessed an increase, ranging from tech giants to utility firms, although the gains tapered off slightly as the day progressed.

Inflation Update

The latest update on inflation from the U.S. government highlighted that consumers paid prices for gasoline, food, and other items that were 3% higher overall in June compared to the same period last year. This figure is a decrease from May’s 4% inflation rate and a significant drop from the over 9% recorded last summer. Notably, the figure was slightly lower than economists’ expectations.

Wall Street’s Battle with High Inflation

High inflation has emerged as the primary concern on Wall Street, as the Federal Reserve has resorted to raising interest rates at a rapid pace. This aggressive approach to monetary policy aims to counter inflation by slowing down the economy and impacting investment prices. Unfortunately, this strategy has already inflicted severe damage on key sectors such as banking and manufacturing.

Traders anticipate yet another interest rate hike by the Fed during its upcoming meeting, which would push the federal funds rate to a range of 5.25% to 5.50% – a level not seen since 2001. However, there is growing speculation that this might be the final increase, given that interest rates had started at near-zero levels last year.

Brian Jacobsen, Chief Economist at Annex Wealth Management, believes that although the hike might still occur, its significance will mainly lie in symbolism rather than substance. Supporting his argument is a recent report indicating a slowdown in U.S. job growth, which could alleviate some of the inflationary pressures.

As a result of the more subdued inflation data, Treasury yields experienced a decline in the bond market. Traders responded by reducing their expectations for future Fed actions later in the year.

For instance, the 10-year Treasury yield dropped from 3.98% to 3.86% on Tuesday. This development is influential in determining rates for crucial financial products like mortgages.

Similarly, the two-year Treasury yield also witnessed a decrease from 4.89% to 4.73%. This particular yield closely correlates with expectations regarding Fed actions.

In energy trading, the price of benchmark U.S. crude CLQ23 rose by 20 cents to $75.95 per barrel. Meanwhile, Brent crude BRNU23, which serves as an international standard, experienced a gain of 24 cents and reached $80.35 a barrel.

Lastly, in currency trading, the U.S. dollar USDJPY slightly increased to 138.51 Japanese yen compared to the previous rate of 138.41 yen.

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