SYDNEY- Asian shares and bonds rallied on Thursday while the dollar nursed heavy losses, as a surprisingly low reading on US inflation reinforced bets the end of the post-pandemic tightening cycle is in sight.
The buoyancy is set to extend to Europe when markets there open, with EUROSTOXX 50 futures gaining 0.2 percent. S&P 500 futures rose 0.2 percent while Nasdaq futures advanced 0.4 percent.
Investors also shook off dismal China trade data, which showed both exports and imports contracted at worse-than-expected pace, suggesting the world’s second-largest economy is continuing to lose momentum.
MSCI’s broadest index of Asia-Pacific shares outside Japan surged 1.8 percent, bolstered by a 2.5 percent jump in Hong Kong’s Hang Seng index and a 1.6 percent gain in Australia’s resources-heavy shares
Japan’s Nikkei also rose 1.4 percent.
Chinese tech giants listed in Hong Kong rallied 3.4 percent after Premier Li Qiang urged the companies to support a slowing economy, adding to signs that a years-long crackdown on the sector is over.
Overnight, the much-watched US consumer inflation report provided better news than markets had hoped for. The Consumer Price Index (CPI) rose 3 percent in June from a year ago, below expectations for a gain of 3.1 percent and a world of difference from 9.1 percent in the same month last year.
In particular, core inflation, which the Fed has feared to be sticky, also showed a sharper-than-expected slowdown.
“With the usual caveat of one month not making a trend, the narrow path to a soft landing looks a smidgeon wider this morning,” said Michael Feroli, chief US economist at JPMorgan.
“There may be a few doves on the FOMC who would be willing to see how far this process can run without additional tightening, but we expect that the Fed leadership is still strongly inclined to hike in two weeks… before the Committee goes on extended pause.”
Indeed, futures still imply a 94 percent probability of a quarter-point hike from the Fed later this month, but have pared back the risk of another hike in September to 13.2 percent, from 22.3 percent a day earlier, according to CME FedWatch Tool.
