Asian stocks rose sharply and bonds rallied on Thursday after softer-than-expected U.S. inflation data reinforced expectations that the Federal Reserve may ease up on its aggressive interest rate hikes.
European stocks were set to open cautiously higher. MSCI's broadest index of Asia-Pacific shares jumped 1.8%, boosted by gains in Hong Kong and Australia. Japan's Nikkei rose 1.5%.
Chinese stocks also rallied despite dismal trade data that showed exports and imports contracted sharply in July, suggesting more stimulus measures may be on the way. Chinese tech stocks listed in Hong Kong surged 3.5% after authorities signaled the tech crackdown may be ending.
U.S. shares futures were little changed after Wall Street rallied on the inflation data.
Investors cheered the U.S. consumer price index report that showed inflation rising 3% in June from a year ago, below expectations and easing from May's 3.1% pace. Core CPI also grew at a slower rate.
The data eased aggressive rate hike bets, pushing Treasury yields and the dollar lower. The 10-year Treasury yield fell 12 basis points to 3.86% in Asia and the dollar slumped to a 15-month trough.
The more sanguine outlook boosted riskier assets, though Fed funds futures still imply a 94% chance of a rate hike later this month and a mid-range view of rates peaking at 3.5-3.75% next year.
In summary, Asian stocks rallied and bonds jumped after yesterday's softer U.S. inflation data supported hopes the Fed may soon slow its rate hikes, pushing bond yields down sharply and weakening the dollar. The more dovish outlook boosted investor risk appetite and Chinese markets rose despite poor trade numbers, indicating the possibility of more stimulus. However, risks remain that central banks will need to tighten policy further to curb inflation.
