Asian equity markets rallied sharply on Wednesday after a surprise decline in US consumer inflation dampened expectations for an imminent Federal Reserve rate increase. South Korea's Kospi led the charge, surging 7%, while Japan's Nikkei 225 added 1% and MSCI's broadest index of Asia-Pacific shares outside Japan climbed 2.4%.
The moves followed a strong session on Wall Street, where the S&P 500 and Nasdaq closed higher on robust bank earnings, despite a 25% sell-off in IBM. US futures pointed to further gains at the open.
Softer Inflation Resets the Rates Debate
US consumer prices fell 0.4% in June, the largest monthly decline since April 2020, driven by a sharp drop in energy costs. Core prices were unchanged from May, and the annual core inflation rate slowed to 2.6% from 2.9%. The data prompted traders to slash the probability of a July Fed rate increase to around 16%.
Two-year Treasury yields fell 11 basis points to 4.19%, reversing part of the previous session's rise to a 17-month high. Strategists noted that the combination of cooling inflation and resilient corporate profits could support a broader equity advance. Major US banks delivered strong second-quarter results, buoyed by trading and investment-banking activity, giving investors another reason to rotate back into risk assets.
AI Enthusiasm Faces a Fresh Credibility Test
The Kospi's outsized gain reflected another sharp swing in semiconductor shares after several volatile sessions. Attention now turns to ASML, which is due to publish second-quarter results on Wednesday. The Dutch company's bookings and outlook will offer a fresh reading on spending across advanced chip manufacturing.
However, optimism remains fragile. IBM lost about a quarter of its value after warning that second-quarter revenue would rise just 1% to $17.2 billion, below the $17.86 billion expected by analysts. Its adjusted profit forecast also missed estimates. The warning suggested corporate technology budgets are shifting toward AI infrastructure—including servers, memory, and data centers—at the expense of traditional software and consulting. That split is making investors more selective even as spending on the wider AI buildout remains strong.
For more on the regional tech rally, see our coverage of the Kospi Index Surges 15% from Lows as Samsung, SK Hynix Lead Tech Rally.
China Slowdown and Oil Risks Temper the Relief
China's economy expanded 4.3% from a year earlier in the second quarter, missing forecasts as weak domestic demand offset stronger industrial production and exports. A rebound in June retail sales offered some encouragement, but economists expect any policy support to remain targeted rather than broad-based. The yuan strengthened to a one-month high, although mainland equities lagged the regional rally. Investors are still waiting for clearer evidence that household spending and the property market are improving.
For context on how China's GDP miss affected other markets, see Hang Seng Surges 1% as Healthcare Rally Offsets Disappointing China GDP Data.
Brent crude steadied near $85.80 a barrel after gaining almost 13% this week. President Donald Trump dropped a proposed 20% charge on ships using the Strait of Hormuz, easing one immediate concern, but the US blockade of Iranian ports and renewed military strikes kept the geopolitical risk premium firmly in place.
For the latest on geopolitical developments and commodity moves, check the Evening Digest: Trump Scraps Hormuz Fee, DeepSeek Preps IPO, Gold & Oil Rally.
This article is for informational purposes only and does not constitute financial advice.
