Asian Stocks Surge as Soft US CPI Fuels Tech Rally Amid Middle East Tensions

Asian Stocks Surge as Soft US CPI Fuels Tech Rally Amid Middle East Tensions​

Asia Pacific Equities Rally on Cooler US Inflation Data​

Asian stock markets experienced a strong rebound, driven by cooler-than-expected US inflation figures. This data has significantly reduced market expectations regarding immediate interest-rate hikes from the Federal Reserve (Fed). The artificial intelligence (AI) sector in particular gained fresh momentum as investors rotated into technology stocks following a period of volatility.

MSCI’s Asia Pacific equities gauge rose 1.2%, with more than three stocks advancing for every decliner. South Korea saw a significant jump as the Kospi index jumped over 6%, propelled by SK Hynix Inc., whose American Depositary Receipts (ADRs) surged 27% and hit a 10% gain. Shares in Japan and Australia also increased, setting the regional benchmark up for a second consecutive day of gains.

Global Energy Prices Spike Amid Escalating Middle East Tensions​

Oil prices rose sharply for the third consecutive day. This rise comes as President Donald Trump threatened further strikes on Iran, following the US resuming its blockade on Iranian shipping through the Strait of Hormuz. The global benchmark Brent advanced 1.8% to exceed $86 a barrel after soaring 11% in the preceding two sessions.

The escalation in the Middle East continues to cast a shadow over the inflation outlook, threatening higher energy costs despite softer CPI numbers. Market analysts caution that the complacency in current oil pricing is concerning. Garfield Reynolds of MLIV Asia noted that fuel futures are "far more elevated than crude peers," suggesting investors might not be fully factoring in potential supply shocks.

Tech Stocks Shine as AI Trade Revives​

The weak US inflation data, coupled with a strong start to the earnings season for some companies, has revived the trade favoring AI and technology stocks. Following recent volatility, tech shares are now enjoying a boost. The premium for SK Hynix’s ADRs over its Korean-listed shares soared more than 50%, just three days after their US trading debut, highlighting renewed attention on the semiconductor sector.

The Nasdaq 100 was lifted by a rally in chipmakers, while the S&P 500 saw gains following solid results from major banks. International Business Machines Corp. (IBM), however, declined 25% due to a sales miss.

Treasury and Commodity Markets Reactions​

Treasury yields stabilized after earlier volatility as traders unwound bets that suggested the Fed would begin raising interest rates this month. The dollar weakened against all Group-of-10 peers. Gold maintained its gains from Tuesday, trading around $4,050 an ounce.

In refined products, fuel markets in both the US and Europe are flashing record tightness as tensions rise in the Middle East. This development threatens more pain for consumers already dealing with high pump prices. Furthermore, Russia is reportedly struggling to ship all of its crude overseas due to escalating Ukrainian drone strikes targeting its refineries.

Fed Chief Vows Continued Vigilance on Inflation​

Fed Chairman Kevin Warsh confirmed that central bank officials maintain zero tolerance for high inflation during testimony before US lawmakers. While noting that the June inflation reading was better than anticipated, Warsh stressed that "there's plenty of work to do." He reiterated his vow to tame price growth, stating that he would not claim "mission accomplished" yet regarding inflation control.

Pacific Investment Management Co.'s Tiffany Wilding commented on the CPI data, calling it a "big relief." She suggested that while further tightening cannot be ruled out, the report should effectively remove a July rate hike from consideration.