Asian shares reached seven-month highs on Wednesday, driven by the record peaks on Wall Street. Despite slightly higher-than-expected U.S. inflation, investors remained optimistic, believing that it would not hinder the anticipated interest rate cuts by the middle of the year. The news that China urged banks to boost financial support for developer China Vanke gave additional backing to Hong Kong stocks.
MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.2% to its highest level since early August. The Hang Seng saw a 0.4% increase, reaching 3-1/2 month highs. Meanwhile, Tokyo’s Nikkei remained stable, with the focus shifting to the ongoing springtime wage negotiations in Japan. The possibility of pay hikes encouraging an exit from negative interest rates could materialize as early as next week.
Recent U.S. data revealed a solid 0.36% increase in consumer prices for February, slightly surpassing the expected 0.3% rise. The rise was attributed to higher costs for fuel and shelter, while the annual core CPI figure eased slightly to 3.8%. Despite this, Vishnu Varathan, chief economist for Asia excluding Japan at Mizuho Bank in Singapore, remains unwavered, stating that the rate cut in mid-2024 remains viable.
U.S. Treasury yields surged post the inflation report, with two-year yields rising by 6.5 basis points to 4.599%, and 10-year yields climbing 5.1 bps to 4.155%. Despite a slight drop in interest rate futures pricing, U.S. stock indexes soared to record highs. Equity markets displayed resilience, with the S&P 500 registering a 1.1% increase and Oracle shares surging by 12%. The market sentiment remains positive, as reflected by the rise in database giant Oracle following profit estimates and future partnerships.
Amid the increase in U.S. yields, the dollar received marginal support in foreign exchange markets. Nonetheless, traders seemed to take the inflation surprise in their stride. The Aussie dollar and euro remained stable, while the yen strengthened by 0.2% against the dollar. Expectations of a rate rise in Japan and news of wage hikes at major companies have bolstered the yen. In commodities, the surge in yields led to a decline in gold prices, with Brent crude futures also stabilizing.
Bitcoin reached a record high of $72,989 overnight, adding to the positive market sentiment and the overall optimism in the financial markets.