Asian shares track Wall Street higher after inflation data

Asian shares track Wall Street higher after inflation data

Share prices are monitored by an investor during morning trading in a brokerage in the Financial Central District of Hong Kong.

BEIJING HONG KONG Reuters- Asian shares tracked Wall Street higher on Thursday after a softer-than-expected U.S. inflation report encouraged bets of less aggressive rate hikes from the Federal Reserve, while the dollar remained bruised after its biggest plunge in five months.

Consumer prices in the US were unchanged in July compared to June, when they rose by a monthly 1.3%. The July result was lower than expected due to a drop in the cost of petrol, which caused markets to reposition on hopes that inflation was peaking.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.0% in early Asia trade, driven by a 1.2% jump in resources-heavy Australia, a 1.4% gain in South Korea and a 1.2% advance in Hong Kong.

Gains in Chinese shares were more subdued. Blue chips went up 0.5% as new COVID 19 lockdowns in more Chinese cities, including the eastern export hub of Yiwu, hurt sentiment.

The S&P 500 futures and Nasdaq futures went up more than 0.3% on Wednesday. The S&P 500 went up more than 2% during the previous session, while the Nasdaq Composite was 20% above its closing low in June.

The Fed's commitment to fighting inflation has been an enormous problem for valuations in 2022, so dovishness is seen as positive for the stock market, particularly for the highest valued companies, said Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson Investors.

The potentially more dovish outlook undermined a key support for the US dollar. U.S. Treasuries, which had pulled back from an earlier plunge in yields, were not trading in early Asia on Thursday due to a holiday in Japan.

The Federal Reserve may be able to temper the pace of interest rate hikes because of slowing U.S. inflation. In a 50 basis point rate hike next month, traders now price in a 50 basis point hike, compared to the 75 basis point increase that was expected before the inflation report.

The July inflation report is a good step towards victory over inflation, according to the July inflation report by the FOMC. If the inflation emergency has passed, at least one or two more similar readings for inflation are necessary, said Elliot Clarke, senior economist at Westpac.

Policymakers left no doubt that they would continue to tighten monetary policy until price pressures were fully broken. During Wednesday's session, Chicago Fed President Charles Evans said core inflation was still unacceptably high, and that the Fed would need to raise rates.

Minneapolis Federal Reserve Bank President Neel Kashkari said that while the inflation reading was welcome, the Fed was far away from declaring victory and needed to raise rates much higher.

On Thursday, the dollar was little changed against its major peers after plunging 1% in the previous session, the most in five months. Commodity currencies rallied on improved risk appetite because of hopes of a soft landing.

In early Asian trade, oil prices fell as traders shifted their attention back to more supply of crude entering the market, along with weaker demand. Brent crude futures fell by 0.4% to $97.05 a barrel, while U.S. West Texas Intermediate crude futures fell by a similar margin to $91.58.