Asian equities surged on Thursday following the release of US data that showed a cooling in inflation, sparking speculation that the Federal Reserve may cut interest rates twice this year.
This news led to record highs for all three major indexes on Wall Street, with retail sales also falling below expectations, indicating a potential slowdown in consumer spending.
The 3.4 percent increase in April consumer prices met forecasts but was lower than the previous month, signaling a possible shift in the inflation trend. Analysts now predict that the Fed will lower borrowing costs twice by the end of the year, compared to earlier projections.
Market analysts like Evercore’s Krishna Guha see a potential rate cut in September and another in December, citing the moderation in the real economy. This sentiment was echoed by Gary Pzegeo of CIBC Private Wealth US, who highlighted the favorable core inflation data and the deceleration in retail sales as factors supporting a Fed rate cut.
While the Fed’s top officials have hinted at elevated rates for the near future, investors remain optimistic about a market rally. This optimism was evident in the previous day’s performance, where the Dow, S&P 500, and Nasdaq closed at all-time highs.
The positive outlook extended to Europe, with London, Paris, and Frankfurt reaching their own record highs amidst expectations of rate cuts by the Bank of England and the European Central Bank. In Asia, markets in Hong Kong, Shanghai, Sydney, Singapore, Seoul, Wellington, Taipei, Manila, and Jakarta all showed gains.
Even Tokyo saw an increase in its stock market, despite data revealing a larger-than-expected contraction in Japan’s economy in the first quarter of the year. The US dollar weakened against major currencies as the prospect of lower rates made the greenback less appealing to foreign investors. Meanwhile, the cheaper dollar pushed gold prices back towards $1,400 for the first time since last month.
