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A majority of Asian equity markets rallied on Friday, tracking record-breaking performances on Wall Street as fresh US inflation metrics signaled cooling price pressures, easing market anxieties over near-term Federal Reserve interest rate hikes. The positive sentiment across Asian trading floors was further bolstered by a continued decline in global crude oil prices.
The regional market gains followed a strong session in New York, where the S&P 500 reached an all-time record and the tech-heavy Nasdaq recorded its highest closing level since June. The rally was sparked by the US Producer Price Index (PPI) data for July, which slowed sharply and arrived below consensus forecasts. Coming closely on the heels of a benign Consumer Price Index (CPI) report and last week's non-farm payrolls data showing 23,000 job losses in July, the figures reinforced market expectations that the Federal Reserve will pause its monetary tightening cycle at its upcoming policy meeting next month. Financial markets are now pricing in less than a 40 percent probability of a September rate hike, down from 50 percent last week.
"A few weeks ago, traders were being asked to justify why the Fed should not hike again," observed Stephen Innes, global strategist at Quintex Intel. "After the latest run of data, the burden of proof has flipped. The market now wants to know what would actually force the Fed to tighten. We've now had a constructive triple-header of dovish US data: softer payrolls last Friday, an obliging core CPI print, and now a risk-friendly PPI release. The disinflation ducks are starting to line up, and with oil also backing off, the market has steadily stripped away the case for another near-term Fed hike."
Despite the broad market optimism, underlying caution persists among traders. Headline inflation remains above the Federal Reserve's 2 percent target, while ongoing Middle East tensions keep global energy supply risks elevated. Furthermore, hawkish commentary from Federal Reserve officials continues to temper sentiment. Cleveland Fed President Beth Hammack reiterated her stance in Ohio on Thursday that borrowing costs should rise further, cautioning: "I love to see that those numbers are coming in lower... but I don't have confidence that we're going to continue to see that, or that we're going to see them low enough that it's going to bring us back down to that two percent number. I think we need to act now."
Across Asia, technology shares led the gains due to their sensitivity to borrowing costs. In Seoul, the benchmark index rallied over one percent, propelled by semiconductor heavyweights SK hynix and Samsung Electronics as they continued to recover from recent market selloffs. Tokyo equities also advanced, led by tech giants Kioxia, Advantest, Sony, and investment conglomerate SoftBank, which jumped four percent. Taipei, Singapore, Jakarta, and Wellington recorded gains, while Hong Kong and Sydney edged lower. Meanwhile, international crude prices extended losses following Thursday's drop of over two percent, even as US Treasury Secretary Scott Bessent warned Tehran of unprecedented economic sanctions, maintaining market focus on regional geopolitical developments.
