US inflation in line with expectations boosts Asian stock markets

Asian stock markets were expected to rise on Thursday after the latest US inflation report matched analysts’ expectations, easing fears of an imminent rate hike by the Federal Reserve. The data therefore produced no negative surprises capable of destabilizing trading.

The reaction comes after a Tuesday session in which Wall Street had closed lower: the Dow Jones had lost 184.13 points, a decline of 0.34 percent, closing at 53,791.85 points, while the S&P 500 and Nasdaq had also recorded declines the same day. The picture described in the available report thus shows a market that, after a decline at the start of the week, is once again looking with greater confidence at the US central bank’s next moves.

According to analysts at Daiwa Capital Markets, a second consecutive contained reading of the consumer price index will make it likely that the Federal Reserve will keep rates unchanged at the September meeting, while acknowledging that inflation nonetheless remains well above the central bank’s target. This is a reading that distinguishes between the specific data point — in line with expectations — and the overall picture, which remains one of inflation above target.

This distinction is relevant to understanding why markets are reacting positively to data that, in absolute terms, does not signal a return to normal on prices: what matters to investors is not so much the level of inflation itself, but its trajectory relative to expectations and, consequently, the probability that the central bank will or will not intervene on rates in the short term. Data that is “in line” reduces uncertainty over a possible imminent monetary tightening, and this is enough to shape the sentiment of Asian markets in the session following the release.

The available report does not provide the exact numerical value of the consumer price index, nor the reference month, nor a comparison with the previous reading: the information available is limited to the qualification of the data as “in line with expectations” and to the interpretation given by Daiwa analysts regarding the implications for the Federal Reserve’s September meeting. It remains to be seen whether this reading will be confirmed in the coming weeks of trading.