Asian stock markets rose on Wednesday, tracking the gains made by Wall Street in the previous session. This bullish sentiment was sparked by a drop in U.S. inflation readings, which has raised hopes that the Federal Reserve may put off any potential hike in interest rates.
The MSCI’s broadest index of Asia-Pacific shares outside of Japan climbed 0.64%, with most major indexes trending upwards. The Nasdaq Composite Index, which had led the gains on Wall Street, saw its biggest daily percentage jump since November last year.
Investors are now eagerly waiting for the release of U.S. Federal Reserve Chair Jerome Powell’s testimony to Congress on Wednesday, which is expected to shed more light on the central bank’s monetary policy direction, and its views on inflation and the overall health of the economy.
The Shanghai, Tokyo, Hong Kong and Sydney stock markets all recorded gains following Wall Street’s lead. The S&P 500 index rose by 0.7% to reach a 14-month high. This was fueled by U.S. government data revealing a drop in consumer inflation to 4% from the previous month’s rate of 4.9%. While this still remains double the Fed’s 2% target, it is significantly lower than last year’s peak of 9.1%.
The decline in U.S. inflation readings has raised optimism among investors that the Federal Reserve will not hasten its interest rate hike plans. This has led to a buying spree in stocks, particularly in the technology sector. The Nasdaq Composite Index, which includes a majority of tech stocks, achieved its biggest daily percentage jump since November last year.
Investors continue to monitor the release of the Federal Reserve Chair’s testimony to Congress on Wednesday, which is expected to provide further insights into the central bank’s monetary policy and views on inflation.
The drop in U.S. inflation has strengthened the belief among investors that the Federal Reserve will refrain from announcing another interest rate hike when its monthly meeting concludes on Wednesday. This view has been further reinforced by calls from two Fed board members to delay any further hikes until the impact of prior rate increases has been analyzed.
According to Clifford Bennett of ACY Securities, the current situation provides the Fed with a chance to pause its rate hike trajectory and reassess its policy outlook.
However, investors are eager for more clarity and await the Federal Reserve Chair’s testimony to Congress for further guidance on the central bank’s monetary policy stance and economic outlook.
The Asian stock markets continued their upward trend on Wednesday. The Shanghai Composite index rose by 0.3% to reach 3,243.66, while the Nikkei 225 in Tokyo advanced to 33,338.37. Hong Kong’s Hang Seng index added 0.2% to reach 19,562.35.
However, South Korea’s Kospi index declined by 0.2%, reaching 2,633.34, while Sydney’s S&P-ASX 200 went up by 0.3% to 7,158.70.
These gains follow Wall Street’s bullish performance following a drop in U.S inflation readings. Investors remain optimistic that the Federal Reserve will hold off on any interest rate hikes. Wednesday’s release of the Federal Reserve Chair’s testimony to Congress is expected to shed further light on the central bank’s monetary policy outlook and its views on inflation and economic strength.
While most of the Asian markets advanced, New Zealand’s market recorded a decline, while Singapore and Bangkok recorded gains on Wednesday.
Meanwhile, on Wall Street, the S&P 500 index rose to 4,369.01, while the Dow Jones Industrial Average posted gains of 0.4% to reach 34,212.12. The tech-heavy Nasdaq composite index was up 0.8% to reach 13,573.32.
Traders remain hopeful that the U.S. economy will continue to avoid a recession, despite the Fed’s move to raise its benchmark lending rate to a 16-year high designed to curb inflation by cooling business activity. Investors will continue to monitor the Federal Reserve Chair’s testimony for further insights into the central bank’s monetary policy and economic outlook.
Following Tuesday’s inflation reading, traders have increased their expectations of the Federal Reserve not announcing a change in interest rates. If this were to happen, it would be the first monthly meeting in over a year without a rate hike.
Previous rate hikes led to a decline in the manufacturing sector and the failure of three high-profile banks.
In light of this, technology stocks like Nvidia rallied 3.9% and played a key role in pushing the S&P 500 index higher. High-growth stocks, especially those in the tech sector, are seen as likely to benefit if the Fed decides to ease its rate hikes.
Apart from benefiting from the hopes of the Fed easing its rate hikes, Nvidia has also gained momentum from Wall Street’s optimism for artificial intelligence.
On Tuesday, four out of five stocks in the S&P 500 index recorded gains. Raw material producers and industrial firms were among the big movers, with rising hopes for a sturdy economy. Miner Freeport-McMoRan, for instance, gained 5.3%.
While traders expect the Fed to hold steady this week, many anticipate that the central bank will resume its rate hikes in July.
Following an investor presentation, Zions Bancorp’s stock fell by 1.6% after it appeared to have reduced its forecast for future net interest income.
Many investors had been predicting that a recession would occur in the third quarter of this year. However, with less than two weeks until the start of that quarter, economic activity has remained strong largely thanks to a resilient job market.
Despite earlier concerns around inflation, indications of an easing off in price rises have served to buoy up investors’ confidence in the stock market. This has seen the S&P 500 index rise to a 14-month high, with the Nasdaq index seeing its largest daily percentage rise since November 2020.
Nevertheless, the Federal Reserve Chair’s upcoming testimony to Congress on Wednesday is expected to shed further light on the central bank’s policy plans and its views on inflation and economic growth. Investors will be keenly following this, looking for clues as to whether a further rate hike could be on the horizon.
In the energy markets, the benchmark U.S. crude saw a decline of 23 cents, trading at $69.19 per barrel on the New York Mercantile Exchange. The contract had increased by $2.30 on Tuesday to reach $69.42. Meanwhile, Brent crude, the international oil price benchmark, declined by 19 cents to reach $74.10 per barrel in London, after gaining $2.45 the day before to settle at $74.29.
The dollar lost ground against the yen, trading at 140.08 yen following yesterday’s closing rate of 140.29 yen. The euro experienced a slight increase, trading at $1.0795 compared to the previous rate of $1.0790.