Asian Shares and Wall Street Hit Record Highs Amid Inflation and Interest Rate Speculations

Asian stock markets soared to a seven-month peak on Wednesday, buoyed by Wall Street’s rally to unprecedented heights, as investors downplayed concerns over marginally higher-than-anticipated U.S. inflation figures. The anticipation that these inflation rates would not hinder expected mid-year interest rate reductions fueled the bullish market sentiment.

The optimism was partly spurred by reports earlier in the week that China had requested banks to bolster financial support for the major developer, China Vanke, injecting a fresh wave of confidence into Hong Kong stocks. Consequently, the MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.2 percent, reaching its highest point since early August, while the Hang Seng index ascended 0.4 percent to a 3-and-a-half month zenith.

In Japan, the Nikkei index remained steady, with investor attention riveted on ongoing spring wage negotiations, which are anticipated to pave the way for a shift from negative interest rates, potentially as soon as the next week.

This market surge came in the wake of data revealing a 0.36 percent increase in U.S. consumer prices for February, slightly above the 0.3 percent forecast, driven by elevated fuel and shelter costs. However, the year-on-year core Consumer Price Index (CPI) witnessed a minor deceleration to 3.8 percent.

Despite this inflationary uptick, analysts like Vishnu Varathan of Mizuho Bank in Singapore remain optimistic about the trajectory towards interest rate cuts by mid-2024, suggesting that the path forward, while potentially uneven, remains clear.

The aftermath of the inflation data saw U.S. Treasury yields rise, with significant movements in two-year and 10-year yields, reflecting slightly adjusted expectations for a June rate cut, now pegged at a 68-percent likelihood. This recalibration did little to dampen the spirits of the equity markets, with U.S. stock indexes reaching all-time highs, underscored by a notable 12 percent jump in Oracle’s shares after surpassing profit expectations and hinting at a collaboration with Nvidia.

In the currency markets, the slight uptick in U.S. yields provided modest support to the dollar, though major currencies like the Australian dollar and the euro showed resilience, maintaining stability. The Japanese yen strengthened, buoyed by expectations of an imminent interest rate increase, as major companies announce wage hikes.

The commodities sector saw gold retreating from near-record levels, influenced by the higher yields, with prices adjusting to $2,157 an ounce. Meanwhile, crude oil prices experienced slight gains, with Brent crude advancing to $82.36 a barrel, reflecting a stabilizing trend after weeks of fluctuation.