Early Equity Rally Fades In Asia

Early Equity Rally Fades In Asia


Asian markets mixed after US inflation data

With Wall Street in transitory inflation rather than sticky inflation mode yesterday, equity markets moved higher. Headline rose by 0.60% versus 0.40% expected. rose by 0.70%, also versus 0.40% expected.

Given that US inflation for May was considerably higher than expected, one would have expected equities to fall. Instead, precisely the opposite happened, leaving many disappointed inflationistas scratching their heads. The markets appear to have bought in to the Fed message that higher inflation is transitory.

The finished 0.47% higher, with the jumping 0.78%, while the managed only a 0.04% rise. In addition, US yields sank once again after the inflation data, helping the rally along with index futures in Asia ever so slightly in the green.

Asian equity markets rallied initially but quickly ran out of momentum, with much of the region slipping back to unchanged or slightly down. Regional investors appear content to continue reducing exposure ahead of the weekend, and there could be some concerns that the G-7 meeting in progress at the moment could spring some surprises.

The is now down 0.10% after rallying earlier, although the remains in positive territory, up 0.40%. In China, the is 0.25% lower while the has fallen 0.60%, although the has risen 0.50%. Singapore is 0.10% higher, while Kuala Lumpur has declined 0.30%. Jakarta is down 0.30%, but Taipei has climbed by 0.35%. Australian markets have given back some early gains, but both the and remain 0.25% higher today.

Although upside momentum has quickly waned in Asia, the benign reaction by US markets to the inflation data is providing some support. That should be enough to lift European markets slightly today, although, with a quiet data calendar, both Europe and Wall Street are likely to finish the week with choppy range trading driven by headline risk.

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