Asian Shares Rally as Slowing Inflation Data Fuels Fed Rate Pause Odds

Shares in Asian and Pacific markets rallied on Wednesday as US inflation accelerated at a slower pace than expected in May, giving the Federal Reserve more room to pause on a rate hike at its coming meeting later this week.

As of 9.39 A.M. Bangkok time, the Nikkei 225 in Japan gained 0.74%, coming within an inch of its all-time high of just under 39,000 points, set in December 1989. 

In Australia, the S&P/ASX 200 climbed 0.28%, while Hong Kong’s Hang Seng index was 0.19% higher.

The Shanghai Composite in mainland China climbed 0.27%.

Meanwhile, South Korea’s Kospi fell 0.16%. The unemployment rate in South Korea dropped to 2.5% in May from 2.6% in April, marking the second consecutive monthly decline.

Overnight in the US, both the S&P 500 and the Nasdaq Composite hit new 13-month highs.

The S&P 500 gained 0.69%, while the Dow Jones Industrial Average rose 0.43%. The Nasdaq Composite picked up the most ground, increasing 0.83%.

The US Consumer Price Index for May rose 4.0% from the same period of last year, the smallest increase since March 2021 and after a 4.9% rise in April.

Inflation rose 0.1% on a monthly basis after an increase by 0.4% in April. Gasoline prices dropped 5.6%, while electricity declined for a third straight month. However, food prices increased 0.2%.

As a result, investors are now placing a 91.9% probability on a rate pause by the Fed after it closes a two-day policy meeting on Wednesday. However, CME Group’s FedWatch Tool indicates that there is still a more than 60% chance that the central bank might restart raises in July.