Title: Asian shares join global rally on softer-than-expected U.S. inflation

Aug 11, 2022 01:55AM ET

By: AnalysisWatch

Asian shares extended a global rally on Thursday after softer-than-expected U.S. inflation data encouraged bets of less aggressive rate hikes from the Federal Reserve, while the dollar struggled for footing after its biggest plunge in five months.

U.S. consumer prices were unchanged in July compared with June, when they rose a monthly 1.3%. The July result was lower than expectations due to a sharp drop in the cost of petrol, causing markets to reposition on hopes that inflation was peaking.

MSCI's broadest index of Asia-Pacific shares outside Japan surged 1.4% to the highest in six weeks, buoyed by a 1.8% jump in Hong Kong, a 1.2% advance in South Korean shares and a 1.5% gain in China's blue chips.

Overnight on Wall Street, the S&P 500 rose more than 2% after the inflation report, while the Nasdaq Composite added 2.9%. The Nasdaq has now gained more than 20% from its June low.

Slowing U.S. inflation may have opened the door for the Federal Reserve to temper the size of coming rate hikes. Traders now price in a 50 basis point (bps) rate hike next month, compared with the 75 bps increase that had been expected before the inflation report.

During Wednesday's session, Chicago Fed President Charles Evans said inflation was still "unacceptably" high, and that the Fed would need to continue to raise rates.

San Francisco Fed President Mary Daly, in an interview with the Financial Times, also warned it is far too early for the U.S. central bank to declare victory in its fight against inflation and a half-percentage point rate rise in September was her baseline.

U.S. Treasuries, which had pulled back from an earlier plunge in yields as traders reassessed the Fed's rate path, were not trading in Asia on Thursday due to a holiday in Japan.

In the currency markets, the dollar gained 0.2% against its major peers after plunging 1% in the previous session, the most in five months. Commodity currencies rallied on improved risk appetite from hopes of a soft landing.

Oil prices fell in early Asian trade as traders shifted attention back to more supply of crude entering the market coupled with weaker demand. Brent crude futures fell 0.4% to $97.02 a barrel, while U.S. West Texas Intermediate crude futures fell by a similar margin to $91.52.

Spot gold eased 0.4% to $1,784.74 per ounce, pulling further away from a one-month high hit in the previous session