Global markets rally to record high levels as investors expect positive US inflation data


Asian stocks rallied to record peaks on Thursday while sterling edged to a four-month high on strong growth figures, as traders counted down to US data that is expected to show inflation easing and pave the way for rate cuts as soon as September.

US shares hit record highs on Wednesday and futures were flat through the Asia session. Bonds and the dollar were broadly steady, keeping the yen on the weak side of 161 per dollar and near its lowest levels in decades.

Japan’s Nikkei rose 1 per cent to a record high of 42,426.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 1.2 per cent to a two-year high. Taiwan stocks hit a record peak and Australia’s ASX 200 closed within a whisker of its all-time top.

“The main driver is really the prospect of interest rate cuts,” said Shane Oliver, chief economist and head of investment strategy at AMP in Sydney. “If we get a good inflation read, it will tick one of Powell’s boxes.”

US Federal Reserve Chair Jerome Powell told lawmakers on Capitol Hill overnight that “more good data” would build the case for the US central bank to cut interest rates. Futures pricing implies about a 75 per cent chance of a cut in September.

Economists forecast annual US CPI slowed to 3.1 per cent in June from 3.3 per cent in May.

The Bank of Korea stood pat on interest rates but left out a warning on inflation, while Governor Rhee Chang-yong told reporters that it was time to prepare to pivot to rate cuts.

A shift in tone at the Reserve Bank of New Zealand on Wednesday led to a sharp re-pricing in rate-cut expectations, with the benchmark two-year swap rate diving 18 basis points and the currency sliding.

Malaysia is expected to hold rates steady later in the day, and the US earnings season will also begin with results from Delta Air Lines and consumer bellwether PepsiCo, followed by bank results on Friday.

China Lagging

China stocks chimed with the market momentum on Thursday, but a drumbeat of disappointing data and talk of tariffs in its major export markets have made rallies hard to sustain. China GDP print is due on Monday.

Hong Kong’s Hang Seng rose 1 per cent, and on the mainland, the blue-chip CSI300 climbed 1.1 per cent although it remains huddled pretty close to Tuesday’s four-and-a-half-month low.

China’s yuan rallied from an almost eight-month low to 7.2701 per dollar.

Sterling was firm after the Bank of England’s chief economist sounded vaguer about the timing of rate cuts than many traders had expected and touched a four-month high of $1.2866 after British GDP data beat expectations.

Elsewhere, moves were modest ahead of the US CPI release.

The euro ticked higher to $1.0835.

The yen slipped to 161.7 per dollar. Data showed Japan core machinery orders unexpectedly down for a second month running, challenging expectations for interest rates to rise.

The New Zealand dollar found support at its 200-day moving average and traded at $0.6095. The Australian dollar rose 0.2 per cent to a six-month high of $0.6763.

Treasuries were steady overnight and in Asia, with US two-year yields holding at 4.62 per cent and benchmark 10-year yields at 4.29 per cent.

In commodity trade, oil prices edged higher on signals of strong US gasoline demand. Brent futures rose 71 cents, or 0.8 per cent, to $85.79 a barrel. US crude climbed 67 cents, or 0.8 per cent, to $82.77 a barrel.

Favourable US weather has wheat futures pressured near two-and-a-half month lows.

Gold crept 0.5 per cent higher to $2,381 an ounce. After a selloff last week, bitcoin has steadied around $58,900.