Seoul led gains across Asian equity markets Wednesday as tech firms bounced back following a softer-than-expected US inflation print that soothed worries about a possible interest rate hike this month.
The mood was also lifted by strong Wall Street earnings, while US President Donald Trump’s U-turn on threats to impose levies on cargo through the Strait of Hormuz provided a little support.
Still, oil prices extended their rally Wednesday as American forces again hit Iranian sites and the US president reimposed a naval blockade of ships sailing to and from the country’s ports.
Crude is up more than 10 per cent since the two countries’ hostilities flared up last week.
Figures on Tuesday showed US consumer prices rose 3.5 per cent last month, down from May’s three-year high of 4.2 per cent and the sharpest pullback in six years.
The reading was also well short of the 3.8 per cent expected, thanks to a drop in energy costs caused by the US-Iran truce that led to the reopening of the Strait of Hormuz.
Investors breathed a sigh of relief at the data and pared their bets on a Fed rate hike this month, though analysts warned the latest US-Iran flare-up could complicate matters.
“The softer inflation data is likely to be welcomed by Federal Reserve officials, reducing the immediate pressure for further rate hikes,” wrote Fiona Cincotta at City Index.
“However, the recent rebound in oil prices and renewed US-Iran tensions could yet complicate the inflation outlook if higher energy costs persist.”
And SPI Asset Management’s Stephen Innes added that the “Fed can keep the gun on the table without firing it”.
“Markets still price at least one hike this year, with some chance of a second, so the tightening story has not disappeared. (The consumer price index data) simply removed the tripwire sitting directly in front of July,” he said.
Asian stocks enjoyed a much-needed rally following a painful selloff in recent weeks as tech firms were battered by concerns over extended valuations and the vast sums invested in artificial intelligence.
Seoul, which has borne the brunt of the losses, jumped as much as seven percent at one point.
That came on the back of a 10 per cent rally in chip giant SK hynix, which has collapsed around 30 per cent since hitting a record high last month.
There were also gains in Tokyo, Hong Kong, Sydney, Singapore, Taipei, Mumbai, Bangkok, Jakarta, and Manila.
Shanghai dipped as data showed China’s economy grew more slowly than expected in the second quarter.
London, Paris, and Frankfurt also fell in early trade.
The dollar extended losses against its peers owing to the lower expectations for a US rate hike.
That followed a healthy day on Wall Street, where tech firms were back on the rise after the inflation figures.
Also lifting sentiment were banking giants JP Morgan, Citigroup, Bank of America, Goldman Sachs, and Wells Fargo, all reporting higher profits in the unofficial kickoff to second-quarter earnings season.
However, IBM collapsed more than 25 per cent after releasing disappointing preliminary second-quarter results, blaming a shift in spending by customers caused by expected higher prices for memory chips and other AI-related infrastructure.
While expectations for a rate hike this month have receded, Fed boss Kevin Warsh warned Tuesday that it was still too early to celebrate.
“There might be some that look at this morning’s data and say, ‘Oh, mission accomplished! Everything is swell’,” he said at a House Financial Services Committee hearing. “That is not my view.”
He told lawmakers that Federal Reserve officials have “no tolerance” for stubbornly high prices and vowed to rid the United States of a years-long “inflation surge.”
He added: “What I’d say is there’s plenty of work to do.”
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Key Figures Around 0715 GMT
West Texas Intermediate: UP 0.4 per cent at $79.62 a barrel
Brent North Sea Crude: UP 0.5 per cent at $85.19 a barrel
Tokyo – Nikkei 225: UP 1.5 per cent at 68,751.51 (close)
Seoul – Kospi: UP 6.2 per cent at 7,284.41 (close)
Hong Kong – Hang Seng Index: UP 1.5 per cent at 24,713.17
Shanghai – Composite: DOWN 0.3 per cent at 3,955.58 (close)
London – FTSE 100: DOWN 0.6 per cent at 10,468.10
Euro/dollar: UP at $1.1436 from $1.1423 on Tuesday
Pound/dollar: UP at $1.3419 from $1.3386
Dollar/yen: DOWN at 162.15 yen from 162.18 yen
Euro/pound: DOWN at 85.22 pence from 85.33 pence
New York – Dow: FLAT at 52,508.27 (close)
AFP
