Hang Seng Index climbs 1% as US inflation data fuels Asia rally

The Hang Seng Index rose more than 1% on Wednesday, joining a region-wide rally after US inflation data came in cooler than expected.

"There are encouraging reasons to expect that inflation has peaked and should edge down in coming quarters," John Williams, president of the New York Fed, said in a speech, reinforcing expectations that the central bank will hold rates steady.

The Hang Seng Tech Index also gained more than 1%. The rally mirrored moves across Asia, where South Korea's Kospi surged 6.2%, Japan's Nikkei 225 added 0.4%, and the MSCI Asia-Pacific index excluding Japan rose 1.7%. In China, the Shanghai Composite edged down 0.3%, diverging from the regional trend.

The US consumer price index fell 0.4% in June, its first monthly decline since the pandemic, while annual core inflation of 2.6% trailed the 2.8% consensus estimate. The data pulled the 10-year Treasury yield down to 4.55% and pushed the dollar lower, removing what traders had priced as a 42% probability of a Fed rate hike at the next meeting.

Rate-Hike Odds Collapse After CPI Miss

Traders slashed expectations for a Fed rate hike at the July 28-29 meeting to about 10% from nearly 42% on Monday, according to CME Group data. The shift followed two consecutive days of softer inflation readings, with Wednesday's producer price index also slowing to 5.5% from 6% in May, below the acceleration economists had expected.

The broader Asian rally was broad-based, with technology-heavy markets leading the charge. South Korea's Kospi — dominated by Samsung Electronics and SK Hynix — jumped 6.2%, recovering from sharp losses earlier this month driven by volatility in AI-related stocks. Japan's Nikkei rose 0.4%, while Hong Kong's gains were supported by strength in Chinese tech names listed on the Hang Seng Tech Index.

Cross-Asset Tailwinds Bolster Regional Rally

Oil prices remained elevated, with Brent crude settling at $84.95 a barrel, up 0.3%, as the US-Iran conflict continued to keep supply risks elevated. The US dollar weakened broadly against major currencies, providing additional support for emerging-market equities. The two-year Treasury yield fell 11 basis points to 4.19% from Tuesday's 17-month high of nearly 4.3%, reflecting the sharp repricing of rate expectations.

For Hong Kong, the lower rate environment reduces the drag on growth-sensitive sectors including property and consumer discretionary, which have weighed on the HSI in recent months. The Hang Seng Index has been under pressure this year as China's economic recovery slowed and geopolitical tensions escalated, making Wednesday's broad-based rally a notable reversal of recent weakness. The University of Michigan consumer sentiment reading of 49.5 in June, above expectations and more than 10% above May, added to the improving macro picture, with five-year inflation expectations dropping to 3.3% and one-year expectations falling to 4.6%.

This article is for informational purposes only and does not constitute investment advice.