What’s going on here?
Asian stock markets gained as traders reacted to softer US inflation data – Indonesian stocks led the charge, while the South Korean won faced a dip.
What does this mean?
Easing inflation in the US is sending positive vibes across Asian markets. The US PCE price index – a key Fed inflation measure – rose by just 2.6% over the year to May, slightly down from 2.7% in April. This suggests inflationary pressures are cooling, nudging the Fed closer to possible rate cuts. Traders are now betting on at least two cuts this year, with a 63% chance of a September cut, according to the CME FedWatch tool. Southeast Asian equities saw modest gains, while the Malaysian ringgit, Singaporean dollar, and Thai baht stayed stable. In contrast, the South Korean won slipped 0.4%, grappling with slower-than-expected export growth driven by chip demand.
Why should I care?
For markets: Easing inflation lights up prospects.
Investors are buoyed by the US inflation data, and this optimism is spreading to Asian markets. Modest gains in Malaysian, Taiwanese, and Philippine stocks and stable Southeast Asian currencies point to cautious optimism. Indonesian stocks were the standout performer, surging 0.8% thanks to the country’s lowest inflation rate in nine months.
The bigger picture: Global forces shape local narratives.
China’s cooling manufacturing and services activity hints at a tepid economic recovery, increasing the likelihood of further stimulus measures. Meanwhile, Japanese economic revisions and a weak yen are putting pressure on regional currencies. Asian markets will be closely watching upcoming inflation data from Thailand, the Philippines, Taiwan, and South Korea to gauge broader economic trends.
