Asian Stocks Rise as US Core Inflation Eases

Asian markets saw a positive upswing on Thursday, bolstered by the latest US core inflation data that indicated a slower-than-expected rise, rekindling hopes for potential Federal Reserve rate cuts. Benchmarks in Australia, Japan, and South Korea all recorded gains, mirroring Wall Street's optimistic close.

The S&P 500 surged 1.8%, marking its most significant gain since the November election, effectively erasing its 2025 losses. The tech-heavy Nasdaq 100 climbed 2.3%, as investor sentiment turned positive following the US core Consumer Price Index (CPI) data for December, which rose less than forecast. This data point has reignited bets on a rate cut by July, reversing earlier expectations that the Fed might only ease policy by September or October.

Treasury yields remained stable after a previous rally had driven 10-year yields down by 14 basis points. The dollar index slipped, while the Japanese yen gained 0.9% against the greenback, marking its strongest performance since November. Australian and New Zealand bond yields also declined, reflecting a shift in investor sentiment.

The cooling of US core inflation has provided a boost to speculative financial markets. Bitcoin traded around $100,000, and Goldman Sachs’ basket of loss-making tech companies rose by 3.2%. The CBOE VIX index experienced its most significant slump of the year, and a Bloomberg index of major tech companies, dubbed the "Magnificent Seven," rallied 3.7%.

Oil prices continued their upward trajectory due to concerns over global supply disruptions, partly driven by sanctions on Russia. Meanwhile, a cease-fire between Israel and Hamas alleviated some geopolitical tensions. US crude inventories saw their longest decline since 2021, further supporting oil prices. Gold, however, slipped slightly after two days of gains.

On the currency front, the Australian dollar rose following data indicating a persistently low unemployment rate, buoyed by ongoing hiring gains. The Bank of Korea is anticipated to lower borrowing costs by 25 basis points, to 2.75%, in its upcoming rate decision. The Canadian dollar also edged higher amid reports of potential US tariffs on Canadian goods, signaling ongoing trade tensions as the Trump administration prepares to take office.

Conclusion

Latest US core CPI data has offered markets a glimmer of hope, suggesting that inflation pressures may be easing. Federal Reserve officials have expressed cautious optimism, although they acknowledge that the inflation rate remains above the 2% target. This development has eased fears of aggressive rate hikes, providing a more stable outlook for both equity and bond markets. As the Biden administration concludes, the focus shifts to the incoming Trump administration's economic policies, particularly concerning tariffs, which could influence future inflation trends.