Asian stocks soar on softer US producer price data

Asian shares climbed on Wednesday, buoyed by hopes of easing inflation pressures after the release of softer-than-expected US producer price data. The dollar weakened as bond yields declined.

The kiwi dollar took a significant hit, falling 0.7 per cent, following the Reserve Bank of New Zealand’s decision to cut interest rates by 25 basis points to 5.25 per cent. The NZ central bank signaled further easing in the months ahead.

Adding to the day’s market activity, Japanese Prime Minister Fumio Kishida announced that he would resign as ruling party leader in September, ending a three-year term marked by economic challenges and political scandals.

The yen strengthened slightly to 146.53 against the dollar, while the Nikkei index gave up earlier gains to close flat.

Despite the political news, broader Asian equities performed well. MSCI’s Asia-Pacific index excluding Japan rose 0.5 per cent, while Hong Kong’s Hang Seng index slipped 0.4 per cent. Mainland Chinese shares also declined.

US equity futures traded flat after a strong rally on Wall Street the previous day. The softer-than-expected producer price data fuelled expectations of a potential half-point interest rate cut by the Federal Reserve in September.

Goldman Sachs lowered its forecast for core PCE inflation, the Fed’s preferred inflation gauge, to 0.14 per cent for July. Investors now eagerly await the release of the consumer price index later in the day, with economists predicting a 0.2 per cent increase in both headline and core figures.

“Risk will find buyers if additional implied rate cuts are driven by a reduced inflation dynamic,” said Chris Weston, head of research at Pepperstone. However, he cautioned that weaker growth or labour market data could dampen market sentiment.

US Treasury yields fell, with the two-year yield dropping seven basis points to 3.4142 per cent. The dollar weakened against a basket of major currencies, falling 0.5 per cent to 102.62. The euro gained 0.6 per cent to $1.0996.

In the commodities market, crude oil prices rebounded from the previous day’s losses as estimates indicated a decline in US crude and gasoline inventories. Brent crude rose 0.6 per cent to $81.19 a barrel, while West Texas Intermediate crude gained 0.7 per cent to $78.91. Gold prices edged up 0.1 per cent to $2,468.78 an ounce.

Attribution: Reuters

Subediting: M. S. Salama