Asian equities soared on Wednesday after a sharp and unexpected decline in US consumer prices for June dramatically shifted expectations for the Federal Reserve's monetary policy. South Korea’s Kospi index rocketed 7%, reflecting a powerful rebound in semiconductor shares, while Japan’s Nikkei 225 gained 1% and the MSCI Asia-Pacific ex-Japan index rose 2.4%. The rally mirrored advances on Wall Street, where strong bank earnings propelled the S&P 500 and Nasdaq higher, even as IBM’s stock cratered 25% following a disappointing outlook.
The catalyst for the global risk-on move was the US inflation report, which showed a 0.4% monthly drop in headline consumer prices, the largest since April 2020, driven by falling energy costs. Core prices remained flat from May, and the annual core inflation rate eased to 2.6% from 2.9%. This data caused traders to slash the odds of a July Fed rate hike to just 16%, down sharply from prior estimates. Two-year Treasury yields tumbled 11 basis points to 4.19%, reversing a recent ascent to multi-month highs.
Investors welcomed the combination of cooling inflation and resilient corporate profits, particularly from major US banks whose second-quarter results were boosted by strong trading and investment-banking activity. However, optimism in the tech sector faces scrutiny. IBM lost roughly a quarter of its market value after warning that second-quarter revenue would rise only 1% to $17.2 billion, missing the $17.86 billion analyst consensus. This suggests corporate technology budgets are pivoting toward AI infrastructure like servers and memory, while legacy software and consulting face headwinds. Attention now turns to ASML’s quarterly results, which will offer further insight into chip manufacturing spending.
Broader macro concerns tempered the relief rally. China’s Q2 GDP growth of 4.3% missed forecasts, weighed down by weak domestic demand despite robust industrial output and exports. The yuan strengthened to a one-month high, but mainland stocks lagged. Meanwhile, Brent crude steadied near $85.80 a barrel amid easing geopolitical jitters after President Trump scrapped a proposed 20% levy on vessels transiting the Strait of Hormuz, though a US blockade of Iranian ports kept a risk premium in place.
