Asian Shares Rally as Wall Street Hits New Highs; Inflation Cools More Than Expected
Asian shares surge as Wall Street reaches new highs amid cooling U.S. consumer inflation. China trade data and Federal Reserve interest rate expectations drive market momentum.
Asian markets experienced a significant surge on Thursday, fueled by Wall Street's impressive performance as it reached its highest level in over a year. The surge came after a report revealed that U.S. consumer inflation had cooled more than anticipated in the previous month.
In afternoon trading, Japan's benchmark Nikkei 225 soared by 1.5% to reach 32,425.69. Similarly, Hong Kong's Hang Seng index witnessed a remarkable surge of 2.6% to reach 19,357.96, while the Shanghai Composite index gained 1.3% to settle at 3,236.86. These gains were observed despite China reporting a decline in trade figures for June.
According to the customs data released on Thursday, Chinese exports experienced a significant tumble of 12.4% compared to the same period last year, as weakening demand followed central banks' decision to raise interest rates in an effort to curb inflation. Import figures also slid by 6.8%, while the trade surplus rose to $70.6 billion, up from $65.8 billion in May.
Commenting on China's situation, Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, stated, "China will likely recover at some point, but we will unlikely see the Chinese growth put severe pressure on commodity markets. That's good news for inflation watchers."
Elsewhere in the region, Australia's S&P/ASX 200 index recorded an increase of 1.7% to reach 7,253.50, and South Korea's Kospi rose by 0.8% to settle at 2,595.51.
On Wall Street, Wednesday saw the S&P 500 index rise by 0.7% to close at 4,472.16, marking its strongest level since April 2022. The Dow Jones Industrial Average also experienced a modest gain of 0.3%, reaching 34,347.43, while the Nasdaq composite surged by 1.2% to settle at 13,918.96.
The majority of stocks witnessed gains, ranging from prominent Big Tech companies to stable utility firms. However, the market's gains slightly tapered off as the trading day progressed.
Wall Street has been grappling with high inflation, which has prompted the Federal Reserve to raise interest rates rapidly. Higher rates have a dampening effect on inflation, but they can also slow down the entire economy and negatively impact investment prices. As a result, the banking, manufacturing, and other sectors have already suffered some damage.
Market traders remain confident that the Federal Reserve will raise the federal funds rate to a range of 5.25% to 5.50% during its upcoming meeting in two weeks, which would mark its highest level since 2001. However, expectations are increasing that this could be the final increase after rates started last year at almost zero.
Following the release of the cooler inflation data, Treasury yields experienced a decline in the bond market as traders adjusted their expectations for Federal Reserve action later this year. The 10-year Treasury yield dropped to 3.86% from 3.98% late Tuesday, while the two-year Treasury yield decreased to 4.73% from 4.89%.
Despite the pressure from higher rates, the resilient job market has helped keep the economy afloat. The latest "Beige Book" report from the Federal Reserve indicated a slight increase in overall economic activity since late May. Some Fed districts have also reported a slowdown in inflation.
In energy trading, benchmark U.S. crude oil saw a modest rise of 19 cents, reaching $75.94 per barrel, while Brent crude, the international standard, gained 25 cents to settle at $80.36 per barrel.
Currency trading witnessed a slight strengthening of the U.S. dollar, which edged up to 138.71 Japanese yen from 138.41 yen. Similarly, the euro experienced a small increase to $1.1138 from $1.1128.
As markets continue to react to global economic developments, investors are closely monitoring the latest trends and indicators to gauge future market movements.