Shares across Asia rallied on Thursday, following a surge on Wall Street, as easing US core inflation reignited optimism that the Federal Reserve might reduce interest rates sooner than expected this year. Major indexes in Australia, Japan, and South Korea posted solid gains, buoyed by the prospect of a slowdown in monetary tightening.
The S&P 500 closed 1.8% higher on Wednesday, marking its best performance since the November elections, and erasing its losses for 2025. The Nasdaq 100 rose 2.3%, driven by gains in tech stocks. Meanwhile, US Treasury yields saw minimal movement on Thursday, with the 10-year yield remaining steady after a significant 14-basis point drop in the previous session. The dollar held steady, while the Japanese yen strengthened, having gained 0.9% against the greenback on Wednesday — its most significant increase since November. The South Korean won also rose as the central bank unexpectedly kept interest rates unchanged.
The market moves were driven by December’s US core consumer price index (CPI) data, which showed inflation rising less than anticipated, reigniting expectations that the Federal Reserve may reduce rates earlier than previously forecast. Following this data, swap traders began fully pricing in a rate cut by July, a dramatic shift from earlier expectations that the Fed might not act until September or October after last Friday’s strong jobs report.
“We’re in a Goldilocks scenario where growth is holding up,” said Suresh Tantia, a strategist at UBS Wealth Management. “We expect substantial earnings growth from tech companies in Asia, particularly in the AI space.”
The rally extended beyond traditional markets, with speculative assets like Bitcoin trading near $100,000 and Goldman Sachs’ basket of unprofitable tech stocks rising by 3.2%. The CBOE VIX index dropped sharply, marking its biggest decline of the year, while the Bloomberg index tracking the top seven US tech giants surged 3.7%.
Commodity prices also saw upward momentum, with oil continuing its early-year rally due to concerns over global supply disruptions and a reduction in US commercial crude inventories, the longest run of declines since 2021. Meanwhile, gold slipped after recent gains.
The Australian dollar strengthened after reports showed the country’s unemployment rate remained low in December, signaling continued economic strength.
Investors are now looking ahead to several key economic reports later in the day. The European Central Bank will release the minutes from its last policy meeting, while the US will report on initial jobless claims and retail sales, offering a broader view of the health of the world’s largest economy.
The Canadian dollar rose slightly after a report indicated that Canada is preparing retaliatory tariffs on US goods should President-elect Donald Trump impose tariffs on Canadian imports.
Cooling Inflation and Fed Rate Outlook
The US core CPI, which excludes volatile food and energy prices, rose by 0.2% in December, marking the first slowdown in inflation in six months. Year-over-year, the index increased by 3.2%, still well above the Federal Reserve’s 2% target.
Several Federal Reserve officials expressed confidence that inflation would continue to decline, though they acknowledged the target rate remains a way off. “The process of disinflation remains in train, but we are still not at our 2% goal, and it will take more time until we can achieve that on a sustained basis,” said John Williams, President of the New York Fed.
Chris Zaccarelli of Northlight Asset Management noted that the decrease in core inflation would likely ease some of the pressure on both stock and bond markets, which have struggled due to inflation concerns and fears that the Fed may not resume rate cuts in the near future.
Key Upcoming Events:
Thursday: ECB releases account of December meeting; Bank of America and Morgan Stanley earnings; US data on jobless claims, retail sales, and import prices.
Friday: China’s GDP, property prices, retail sales, and industrial production; Eurozone CPI; US housing starts and industrial production.
Market Moves:
Stocks:
- S&P 500 futures rose 0.1%
- Hang Seng futures up 0.6%
- Japan’s Topix rose 0.4%
- Australia’s S&P/ASX 200 gained 1.5%
- Euro Stoxx 50 futures largely unchanged
Currencies:
- Bloomberg Dollar Spot Index steady
- Euro little changed at $1.0295
- Yen stable at 156.32 per dollar
- Offshore yuan steady at 7.3475 per dollar
Cryptocurrencies:
- Bitcoin up 0.1% to $99,788.68
- Ether down 0.9% to $3,402.11
Bonds:
- US 10-year Treasury yield little changed at 4.66%
- Japan’s 10-year yield down 2 basis points to 1.230%
- Australia’s 10-year yield down 11 basis points to 4.52%
Commodities:
- WTI crude up 0.5% to $80.45 per barrel
- Gold little changed
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