By COMFORT OGBONNA
Asian stocks advanced on Thursday after U.S. inflation data came in broadly as expected, reducing expectations that the Federal Reserve will raise interest rates in the near term, while investors continued to monitor elevated oil prices and the unresolved conflict in the Gulf.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose about 0.97%, led by a sharp rally in South Korean stocks, which climbed 4.4%. Japan’s Nikkei also gained 1.86%, while U.S. S&P 500 futures were little changed.
The gains came after U.S. consumer prices increased 0.1% in July, matching economists’ expectations. The modest increase has reduced some pressure on the Federal Reserve to raise interest rates at its September meeting.
Financial markets have sharply adjusted their expectations for a September rate increase. The probability of a hike has fallen to about 40%, compared with 54% a week earlier, according to futures-market pricing.
Investors are nevertheless expected to remain cautious until the release of additional inflation data before the Federal Open Market Committee meets in September.
The next U.S. inflation report will be closely watched because oil prices have risen moderately since July, creating uncertainty over whether energy costs could contribute to renewed inflationary pressure.
“Both the Fed and markets will likely want to assess the data right up until just before the September FOMC,” said Den Miki, a senior rate strategist at SMBC Nikko Securities.
The latest inflation figures also supported gains in some Asian markets by reducing concerns that higher U.S. interest rates could pressure regional currencies and increase borrowing costs.
Oil prices remained elevated despite easing slightly during Asian trading. U.S. crude declined 0.83% to about $82.58 a barrel, while Brent crude fell 0.71% to approximately $88.35 a barrel.
Energy markets remained focused on the standoff between the United States and Iran over efforts to end the conflict in the Gulf. Negotiations aimed at reviving an interim agreement reached earlier in the year have made little progress, with no clear timetable for implementation.
The dispute has also centered on the Strait of Hormuz, a critical shipping route for global oil supplies.
U.S. President Donald Trump said the United States had “total control” of the strategic waterway, while Iran rejected the claim and said the route remained blocked.
Any prolonged disruption around the Strait of Hormuz could have significant consequences for global energy markets, particularly if it limits the movement of crude oil and other petroleum products.
Currency markets were also influenced by shifting expectations for monetary policy in Japan.
The dollar weakened slightly against the yen, falling 0.06% to about 159.32 yen. Investors increasingly expect the Bank of Japan to raise interest rates as early as next month rather than waiting until later in the year.
Those expectations were strengthened by Japanese wholesale prices, which rose 7.2% in July from a year earlier. The increase suggests that inflationary pressures in Japan remain broad and could give policymakers additional reason to consider tightening monetary policy.
The dollar index, which measures the U.S. currency against a basket of major currencies, was little changed at 99.93.
U.S. Treasury yields edged higher, with the benchmark 10-year yield rising slightly to 4.688% from 4.682% on Wednesday.
In Australia, Reserve Bank of Australia Assistant Governor Christopher Kent said the central bank’s three interest-rate increases earlier this year were beginning to have the desired effect on economic activity.
Kent said tighter monetary policy would take time to fully affect household spending, economic growth and inflation.
The Australian dollar was broadly stable against the U.S. dollar at about $0.7062.
Precious metals also moved higher. Spot gold gained about 0.28% to $4,419.28 an ounce, while silver rose 0.3% to approximately $65.50 an ounce.
Markets are now balancing several competing forces, including expectations for U.S. monetary policy, the possibility of further rate increases in Japan and Australia, elevated energy prices and geopolitical uncertainty in the Gulf.
Investors are likely to remain focused on upcoming economic data for further clues about the direction of interest rates. Any unexpected change in inflation, employment or energy prices could quickly alter expectations and trigger greater volatility across global financial markets.
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