Investors breathed a sigh of relief at the data and pared their bets on a Fed rate hike this month, though analysts warned the latest US-Iran flare-up could complicate matters.
“The softer inflation data is likely to be welcomed by Federal Reserve officials, reducing the immediate pressure for further rate hikes,” wrote Fiona Cincotta at City Index.
“However, the recent rebound in oil prices and renewed US-Iran tensions could yet complicate the inflation outlook if higher energy costs persist.”
And SPI Asset Management’s Stephen Innes added that the “Fed can keep the gun on the table without firing it”.
“Markets still price at least one hike this year, with some chance of a second, so the tightening story has not disappeared. (The consumer price index data) simply removed the tripwire sitting directly in front of July,” he said.
Asian stocks enjoyed a much-needed rally following a painful selloff in recent weeks as tech firms were battered by concerns over extended valuations and the vast sums invested in artificial intelligence.
Seoul, which has borne the brunt of the losses, jumped as much as 7 per cent at one point.
That came on the back of an 8.8 per cent rally in chip giant SK hynix, which has collapsed around 30 per cent since hitting a record high last month.
There were also gains in Tokyo, Hong Kong, Sydney, Singapore, Taipei, Mumbai, Bangkok, Jakarta and Manila.
Shanghai dipped as data showed China’s economy grew slower than expected in the second quarter.
London, Paris and Frankfurt also fell in early trade.
The dollar extended losses against its peers owing to the lower expectations for a US rate hike.
That followed a healthy day on Wall Street, where tech firms were back on the rise after the inflation figures.
Also lifting sentiment were banking giants JP Morgan, Citigroup, Bank of America, Goldman Sachs and Wells Fargo all reporting higher profits in the unofficial kickoff to second-quarter earnings season.
However, IBM collapsed more than 25 per cent after releasing disappointing preliminary second-quarter results, blaming a shift in spending by customers caused by expected higher prices for memory chips and other AI-related infrastructure.
While expectations for a rate hike this month have receded, Fed boss Kevin Warsh warned Tuesday that it was still too early to celebrate.
“There might be some that look at this morning’s data and say, ‘Oh, mission accomplished! Everything is swell’,” he said at a House Financial Services Committee hearing. “That is not my view.”
He told lawmakers that Federal Reserve officials have “no tolerance” for stubbornly high prices and vowed to rid the United States of a years-long “inflation surge”.
He added: “What I’d say is there’s plenty of work to do.”
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