Asia markets surge on hopes Fed is close to end of rate hike cycle; STI up 1.7%

Hong Kong – Asian markets leaped on Thursday on optimism that the Federal Reserve’s

long-running campaign of interest rate hikes could be near an end

after data showed US inflation rose less than expected in June.

Traders already had a spring in their step this week on signs that the central bank’s monetary tightening measures were kicking in, fanning speculation that this month’s expected hike could be the last of an elongated cycle.

The mood brightened further on Wednesday when the Labour Department said the United States consumer price index came in at 3 per cent in June, a more than two-year low and sharply down from 4 per cent in May. The Fed’s target is 2 per cent.

On top of that, the “core” rate, which excludes the volatile food and energy components and is seen as a better sign of underlying inflation, sank to its lowest since 2021.

Wall Street cheered the latest figures on Wednesday, with the Nasdaq up more than 1 per cent as technology firms are more susceptible to borrowing costs, while European markets also surged.

Asia happily picked up the baton, with Hong Kong up more than 2 per cent, while Tokyo, Sydney, Seoul, Taipei and Manila were all up more than 1 per cent.

Singapore’s Straits Times Index was up 1.7 per cent at 11.28am.

The readings follow last week’s better-than-hoped personal consumption expenditures data – seen as the Fed’s preferred gauge – and stoked bets that the bank will hike just once more in July before calling it quits.

Analysts also pointed out that while showing signs of softness, the economy remained in rude health and the labour market was still robust, suggesting that the recession many had feared earlier this year could be avoided.

“The economy is defying predictions that inflation would not fall absent significant job destruction,” Dr Lael Brainard, director of the National Economic Council and former Fed vice chair, told the Economic Club of New York.

Also on Wednesday, the Fed’s “beige book” survey of the economy showed activity had improved since late May, thanks to strong tourism and travel.

The US dollar struggled to rebound from losses on Wednesday against its main peers, with the yen holding below 139 to the greenback, the sterling hovering around a 15-month-high of US$1.30 and the euro at multi-month highs.

Hong Kong’s tech giants were among the Hang Seng Index’s best performers on the hope that China’s crackdown on the sector is near an end.

This optimism was boosted by state media reports that Premier Li Qiang met representatives from industry leaders, including Alibaba and TikTok’s Chinese counterpart Douyin, on Wednesday.

Mr Li “listened to the opinions and suggestions” of the sector for a “healthy development” of the digital economy, broadcaster CCTV said.

“I hope many digital companies will firmly believe in the future,” said Mr Li, according to CCTV.

The imposition of hefty fines for the fintech affiliates of Tencent and Alibaba last week was seen as a signal that the painful crackdown had wound down.

Traders are also keeping watch for any statements out of Beijing after officials announced a series of pledges to support the struggling property sector and indicated that other growth-boosting measures would be outlined. AFP