Image: Reuters Berita 24 English - A softer-than-expected U.S. inflation report supported speculations of less aggressive rate hikes from th...
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| Image: Reuters |
Berita 24 English - A softer-than-expected U.S. inflation report supported speculations of less aggressive rate hikes from the Federal Reserve on Thursday, but the dollar remained battered following its largest drop in five months. Asian equities followed Wall Street higher.
In contrast to June, when they increased monthly by 1.3%, U.S. consumer prices were stable in July. Due to a steep decline in the price of gasoline, the July result fell short of forecasts, which led markets to reposition themselves in the belief that inflation had peaked.
Early Asian trading saw a 1.0% increase in MSCI's broadest index of Asia-Pacific equities outside of Japan, spurred by gains of 1.2% in resource-rich Australia, 1.4% in South Korea, and 1.2% in Hong Kong.
Chinese stock gains were less pronounced. Blue-chip stocks rose 0.5% after further COVID-19 lockdowns, including those in Yiwu, an important eastern export hub, damaged mood in other Chinese cities.
On Wednesday, the S&P 500 futures and Nasdaq futures both increased by over 0.3%. The Nasdaq Composite closed 20% above its most recent closing low in June, while the S&P 500 gained more than 2% during the previous session.
According to Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson Investors, "rising real yields, due to the Fed's commitment to fighting inflation, have been an enormous problem for valuations in 2022. Therefore, any dovishness is seen as positive by the stock market, particularly for the highest valued companies."
However, a crucial pillar supporting the US dollar was undercut by the potentially more pessimistic outlook.
Due to a holiday in Japan, U.S. Treasuries were not traded in early Asia on Thursday. This followed a previous decline in rates as traders reevaluated the Fed's rate path.
The Federal Reserve may have been able to slow the pace of upcoming interest rate increases due to the slowing of US inflation. Instead of the 75 basis point increase that was anticipated prior to the inflation report, traders now anticipate a 50 basis point rate increase for next month.
"The July inflation data is a welcome first step for the FOMC in its quest to defeat inflation. To be certain that the inflation emergency has passed, they will need at least one or two more readings of inflation that are similar "said senior economist at Westpac, Elliot Clarke.
Indeed, decision-makers made it clear that they would keep tightening monetary policy until pricing pressures were completely relieved. nL1N2ZM0ZP]
Core inflation was remained "unacceptably" high, according to Chicago Fed President Charles Evans, and the Fed would need to keep raising rates.
Neel Kashkari, president of the Minneapolis Federal Reserve Bank, stated that although the inflation number was "welcome," the Fed was "far, far from declaring victory" and needed to raise rates significantly.
The dollar's value versus the major currencies was little changed on Thursday after falling by 1% the previous session, the biggest in five months. Commodity currencies increased in value due to increased risk taking and expectations of a soft landing.
Early Asian trading saw a decline in oil prices as traders turned their focus back to lower demand and increased supply of petroleum entering the market. U.S. West Texas Intermediate crude futures decreased by a similar amount to $91.58 and Brent crude futures decreased by 0.4% to $97.05 per barrel.
Gold dropped a little bit. The price of spot gold dropped from a one-month high reached in the previous session to trade at $1,790 per ounce. [GOL/]
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