Asia shares rise after cooling US inflation offsets hawkish Fed

Tokyo - Asian stocks rallied on June 13, following their US peers, after cooling US inflation more than offset a somewhat hawkish US Federal Reserve stance on interest rate cuts.

Equity benchmarks rose in Hong Kong, Australia and South Korea, while US stocks futures also gained after the S&P 500 topped 5,400 for the first time on June 12.

South Korea’s Kospi index led Asia markets higher, popping 1.39 per cent. Japan’s Nikkei gained 0.56 per cent while Australia’s S&P/ASX 200 rose 0.8 per cent.

Hong Kong’s Hang Seng Index opened up 1.23 per cent, powered by gains in electric vehicle stocks, despite the European Union slapping tariffs of up to 38 per cent on Chinese electric vehicle makers.

BYD was the top gainer on the Hang Seng, surging over 6 per cent, while counterparts Nio and Li Auto saw their shares climb by 2.77 per cent and 1.85 per cent respectively.

The mainland Chinese CSI 300 was 0.12 per cent higher.

Singapore’s Straits Times Index was up 0.54 per cent as at 10.45am local time.

A report earlier on June 12 showed the US core consumer price index had cooled to the slowest pace in more than three years in May. Later that day, the Fed pencilled in just one quarter point cut in 2024, down from three seen in March, while upping its outlook for 2025 to four cuts.

“The net impact of the two events would be positive for Asian central banks and are likely to lead to stronger Asian currencies against the dollar and higher stock prices,” said Invesco Asset Management global markets strategist Tomo Kinoshita. “Meanwhile, lower US bond yields are expected to be a positive factor for Asian growth stocks.”

Individual Fed officials’ views on the best path forward for borrowing costs differed. The Fed’s “dot plot” showed four policymakers saw no cuts in 2024, while seven anticipated just one reduction and eight expected two cuts.

“These ‘dot plot’ projections likely don’t account for the latest May inflation data, which were softer than expected and reversed some of the heat we saw in the first quarter,” said Dr Sonu Varghese at Carson Group. “We still think the odds are high for two rate cuts in 2024 if the disinflation process continues, as we expect.”

In his press conference following the decision, Fed chair Jerome Powell acknowledged that inflation has eased substantially but remains too high, and rate cut expectations have been pushed out due to slower than expected progress in bringing price growth down to the US central bank’s 2 per cent goal.

Baird investment strategy analyst Ross Mayfield said: “I think the main takeaway will be that the market was probably expecting the Fed to shift the dot plot from three cuts to two cuts. Instead, it was shifted from three cuts to one cut, which on margin is a hawkish surprise.”

Still, financial markets are pricing in a 61.5 per cent likelihood of a 25 basis point rate cut in September, up from 46.8 per cent on June 11, according to CME’s FedWatch tool. BLOOMBERG, REUTERS