Asian markets rally as cooler U.S. inflation eases rate hike fears

Asian markets surged on Wednesday after cooler-than-expected U.S. inflation data eased fears of imminent Federal Reserve rate hikes, with South Korea's Kospi leading gains at more than 6% and semiconductor stocks driving the rally.

Inflation Surprise Lifts Sentiment

The U.S. Bureau of Labor Statistics reported on Tuesday that the Consumer Price Index decreased 0.4% on a seasonally adjusted basis in June — the largest one-month decline since April 2020 — while core inflation was unchanged month-over-month, bringing the annual core rate to 2.6% versus expectations of 2.8%. The data sharply reduced market pricing for a July rate hike, with odds falling to around 16% from roughly double that level the day before.globalbankingandfinance+2

Overnight, the Nasdaq Composite rose 0.9% and the S&P 500 climbed 0.4%, setting the stage for broad gains across Asia.globalbankingandfinance

South Korea Leads the Charge

The Kospi surged more than 6% to around 7,300, extending gains from the previous session amid a global technology rally. The rally came after the index had fallen more than 20% from its late-June record close of 9,114.55, entering what is commonly considered bear-market territory, according to Reuters.businesstimes+2

SK Hynix jumped nearly 13% in Seoul on Wednesday, tracking a 27% gain in its newly listed American depositary receipts on the Nasdaq ↘ 2.62% the previous day. The ADRs, which debuted on July 10, had recovered sharply from a 9.3% drop a day earlier, pushing their premium over Seoul-traded shares to 51%, according to data compiled by Bloomberg.straitstimes+1

MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.7%, with more than three stocks advancing for every decliner. Japan's Nikkei 225 gained in early trade.globalbankingandfinance+1

Broader Market Context

The rally marked a reversal from a turbulent stretch for South Korean equities, which had been battered by volatility in chipmaker stocks and concerns about leveraged investment products. The Kospi had triggered a circuit breaker for the sixth time this year during the selloff the previous week.reuters

The U.S. dollar weakened on fading rate-hike expectations, with the euro steadying above $1.14 and the Australian dollar testing $0.70. Brent crude futures held around $85.50 a barrel after gaining more than 12% in the preceding week on Middle East tensions.youtube+1