TOKYO- Asian stock markets rallied on Thursday, buoyed by Wall Street’s surge to all-time peaks overnight after a milder US inflation report raised expectations the Federal Reserve will deliver two interest rate cuts this year.
The dollar remained on the back foot, sagging to fresh multi-week lows against peers including the euro and sterling.
US Treasury yields extended their retreat in Tokyo trading, sinking to six-week troughs. That helped the beaten-down yen to continue its recovery, even as data showed the Japanese economy contracted more than expected in the first quarter.
Gold marched back toward record levels and crude oil added to gains after rebounding strongly overnight from a two-month trough.
US data on Wednesday showed the consumer price index (CPI) rose by 0.3 percent in April, below an expected 0.4 percent gain, raising hopes the Fed can cut rates by 50 basis points this year, with the first quarter-point reduction fully priced for September.
The data provided succour to markets after higher-than-expected US consumer prices in the first quarter had led to a sharp paring of rate cut bets and even stoked some worries of an additional hike.
“The expression of relief ripples through risky assets, with markets coming alive the moment we saw US core CPI,” Chris Weston, head of research at Pepperstone, wrote in a report.
“All in all, after three months of troubling price pressures, this is a report that will sit well with (Fed Chair) Jay Powell and co.”
MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 1.5 percent . Hong Kong’s Hang Seng and Australia’s stock benchmark each rallied about 1.6 percent .
Japan’s Nikkei advanced more than 1 percent .
“US CPI inflation provided relief that the Fed’s last mile towards its 2 percent inflation target may become less complicated,” DBS Group strategists wrote in a client note.
“Market participants are sufficiently satisfied to keep the soft-landing narrative going, buoying risk sentiment in the process.”
Japan’s currency was a standout on Thursday, far outpacing gains against the dollar among major peers.
