TOKYO: Asian equities rallied on Thursday, while bond yields slid, as investors weighed cooling US inflation against a more hawkish posture by the Federal Reserve.
Japanese shares underperformed and the yen inched down against the dollar, as the Bank of Japan began its two-day policy meeting.
MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.9%, with Taiwan stocks jumping 1.7% and Hong Kong’s Hang Seng up nearly 1%, buoyed by the US S&P 500 and tech-heavy Nasdaq closing at record highs overnight.
US futures pointed to further gains, with S&P futures up 0.2% and Nasdaq futures adding 0.6%.
Japan’s Nikkei edged up 0.1% after an initial tech-led advance fizzled.
Wall Street had rallied strongly, while the dollar and Treasury yields tumbled early in the US session, after the closely watched CPI report showed core prices growing at their slowest annual pace in over three years last month.
However, investors were whipsawed later as Fed officials trimmed projections for interest rate reductions this year to a single quarter-point cut. In his post-meeting press conference, Fed Chair Jerome Powell acknowledged that inflation has eased substantially but still remains too high.
At the same time, he said the rate-path decision was a “close call” for many policymakers, and to some degree the Fed had merely traded an earlier start to rate reductions this year by tacking an additional anticipated cut onto 2025.
“These projections remain hostage to the incoming data, (and) on that front, the May consumer price index was a genuine dovish surprise,” said Nick Ferres, chief investment officer at Vantage Point, Singapore.
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“What really matters for markets is that today’s prevailing bias on the ‘soft-landing’ narrative has probably peaked.
That might contribute to a peak in equity prices sometime over the northern hemisphere summer.“
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