Asian Markets Rise Following Encouraging U.S. Inflation Data

Asian shares showed positive momentum on Thursday, largely influenced by a rally on Wall Street, which was fueled by optimistic updates regarding U.S. inflation.

In Japan, the benchmark Nikkei 225 index experienced an increase of 0.5%, reaching 38,635.25.

Recent data from the Bank of Japan indicated that wholesale prices in Japan surged by 3.8% in December compared to the previous year. This statistic intensifies the pressure on the central bank to consider raising interest rates, potentially during an upcoming monetary policy meeting next week.

Meanwhile, in China, the Hang Seng index in Hong Kong rose by 1.2%, reaching 19,516.62, and the Shanghai Composite index climbed nearly 0.3% to settle at 3,237.32. Australia’s S&P/ASX 200 saw a significant gain of 1.4%, closing at 8,327.00, while South Korea’s Kospi advanced by 1.2% to 2,526.15.

The positive sentiment on Wall Street was bolstered by strong profit reports from major U.S. banks, including Wells Fargo, which contributed to the best performance for indexes in two months. The S&P 500 increased by 1.8% to 5,949.91, the Dow Jones Industrial Average rose by 1.7% to 43,221.55, and the Nasdaq composite saw a notable jump of 2.5%, reaching 19,511.23.

Bank stocks played a pivotal role in this upward trend, with several institutions reporting higher-than-expected profits for the last quarter of 2024. For instance, Wells Fargo surged by 6.7%, Citigroup rose by 6.5%, and Goldman Sachs increased by 6%. These companies were among the first to disclose their results for the end of the year, drawing extra scrutiny from analysts.

In addition, Treasury yields eased following news about December’s cost increases for essential items such as eggs, gasoline, and housing. The overall inflation rate climbed to 2.9%, up from 2.7% in November. The yield on the 10-year Treasury bond fell significantly to 4.65% from 4.79% observed late on Tuesday. This decrease is notable, considering yields had been rising sharply since September when they were below 3.65%. Similarly, the two-year Treasury yield, which is more reflective of the Federal Reserve’s expected actions, decreased to 4.26% from 4.37%.

Despite the concern surrounding rising inflation, some positive trends emerged in the underlying data. When excluding volatile food and energy prices, core inflation eased to 3.2% in December, contrary to economists' expectations of a steady rate of 3.3% for a fourth consecutive month. The Federal Reserve places considerable emphasis on this core figure, making the trend particularly encouraging amid discussions about inflation's trajectory relative to their 2% target.

Recent market fluctuations have been driven by traders revising their predictions for future interest rate actions by the Federal Reserve. While many do not anticipate this week’s data to influence an immediate cut in the main interest rate at the upcoming meeting, analysts suggest that it may pave the way for potential cuts later in the year, possibly even in March, given additional favorable data.

Additionally, rising Treasury yields can increase pressure on stock prices by attracting investors toward bonds that offer higher interest rates. This typically compels stock prices to either decline or for corporate earnings to increase significantly to maintain investor interest.

In other early Thursday dealings, benchmark U.S. crude oil prices rose slightly, adding 5 cents to reach $78.76 a barrel, while Brent crude, the global benchmark, increased by 1 cent to $82.04 per barrel. The U.S. dollar saw a minor decline, trading at 156.18 Japanese yen, down from 156.47 yen. The euro remained stable at $1.0288, slightly down from $1.0289.

Asian, Markets, Inflation