Asian Stocks Surge as Softer US Inflation Eases Fears of September Fed Rate Hike

Asian stocks climbed sharply on Thursday after softer-than-expected pressure in the US inflation outlook reduced expectations that the Federal Reserve will raise interest rates at its September meeting, giving investors fresh confidence to add riskier assets.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose around 1%, while South Korean stocks led regional gains with a jump of more than 3%. Japan’s Nikkei also advanced strongly, helped by gains in technology and chip-related shares and a positive earnings outlook.

The market reaction followed the release of US consumer-price data showing that prices increased just 0.1% in July, broadly matching expectations. Core inflation, which excludes food and energy prices, rose 0.2% from the previous month, suggesting that underlying price pressures remained relatively contained.

The data encouraged traders to reduce bets on another Federal Reserve rate increase. Money markets were pricing in roughly a 40% probability of a September hike, down from about 54% a week earlier. Investors are now looking toward additional economic indicators, including upcoming producer-price data, for further clues about the central bank’s next move.

Lower expectations for higher US borrowing costs can support equity markets because they reduce pressure on corporate financing costs and make stocks relatively more attractive compared with interest-bearing assets. Technology companies, which are particularly sensitive to interest-rate expectations, benefited from the shift in sentiment.

Wall Street also provided a positive lead. The S&P 500 gained 0.26% on Wednesday, while the Nasdaq Composite rose 0.54%, supported by strong performances from artificial-intelligence and data-centre companies.

Currency markets were more subdued, with the dollar losing momentum after the inflation figures weakened expectations for an imminent Fed tightening. Gold remained near a more than two-month high as investors assessed the changing interest-rate outlook.

Oil prices, meanwhile, moved lower as attention shifted toward demand risks and stalled US-Iran negotiations. The uncertainty surrounding the talks has kept energy markets volatile, with investors weighing geopolitical developments against concerns about global economic growth.

For Asian markets, the latest inflation figures provide a temporary boost, but investors remain cautious. Future US inflation, employment and economic-growth data will continue to determine whether the Federal Reserve keeps rates steady or resumes tightening later this year.