On Thursday, Asian stock markets experienced a strong rally. This was supported by Wall Street’s overnight ascent to record highs, following a more subdued U.S. inflation report that increased forecasts of two interest rate cuts from the Federal Reserve this year.
The dollar continued to lose ground versus rivals like the euro and sterling, plunging to new multi-week lows.
In Tokyo trading, U.S. Treasury rates continued to decline, reaching six-week lows. This supported the weaker yen’s recovery, despite statistics indicating that Japan’s economy shrank more than anticipated in the first quarter.
Following a robust overnight recovery from a two-month low, crude oil contributed to gains as gold continued its march back toward record levels.
The consumer price index (CPI) increased by 0.3% in April, less than the 0.4% growth that was anticipated, according to U.S. data released on Wednesday. The statistics brought about an increase in optimism about a 50-basis point rate decrease by the Fed this year. The first quarter-point reduction is fully priced for September.
The report gave the markets relief after sharply declining bets on rate cuts and even stoking fears of a further hike due to U.S. consumer prices that were higher than anticipated in the first quarter.
According to a report by Chris Weston, head of research at Pepperstone, “the expression of relief ripples through risky assets, with markets coming alive the moment we saw U.S. core CPI.”
“All in all, after three months of troubling price pressures, this is a report that will sit well with (Fed Chair) Jay Powell and co.”
The Asia-Pacific equities MSCI broadest index outside of Japan increased by 1.5%. Both Australia’s stock benchmark and Hong Kong’s Hang Seng saw gains of roughly 1.6%.
The Nikkei in Japan increased by more than 1%.
In a client note, strategists at DBS Group stated, “U.S. CPI inflation provided relief that the Fed’s last mile towards its 2% inflation target may become less complicated.”
“Market participants are sufficiently satisfied to keep the soft-landing narrative going, buoying risk sentiment in the process.”
On Thursday, the value of the Japanese yen stood out among its major counterparts, outperforming gains made against the US dollar.
At 153.86 yen, the dollar was down 0.66% from its peak of 156.55 in the previous session.
In Tokyo trade, the 10-year U.S. Treasury yield, often tracked by the dollar-yen pair, dropped below 4.705% for the first time since April 5. This marked a significant shift in market dynamics.
At 104.07, the dollar index—which compares the value of the dollar to that of the yen, euro, sterling, and three other competitors—reached a five-week low.
The euro hit its best level since March 21 at $1.0895, while sterling saw its highest level since April 10 at $1.27005.
Leading cryptocurrency bitcoin, which benefited from widespread dollar weakening, reached a new three-week high at $66,694.89 after rising more than 7% on Wednesday.
According to Pepperstone’s Weston, “it’s hard to go past the move in crypto.”
“The 23 April swing high of $67,252 is the near-term target and the level to watch,” he stated. “A break here and we will likely see traders chasing this move for a push into $70,000.”
Gold reached a high of $2,397.32, moving closer to the record high of $2,431.29 set on April 12.
On Wednesday, U.S. West Texas Intermediate (WTI) crude recorded significant gains. It climbed 42 cents, or 0.53%, to $79.05, while Brent futures rose by 39 cents, or 0.47%, reaching $83.14 a barrel.
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